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Payroll Accounting

This document provides information about payroll processes including: 1) Payroll involves accurately paying employees their gross pay after deducting statutory amounts like taxes and non-statutory deductions. 2) Common payment methods include monthly, weekly, hourly rates and piece rates calculated based on work completed. 3) Payroll registers track employee earnings and deductions to calculate net pay each period. 4) Statutory deductions like income tax and social security must be withheld from gross pay.

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Adrian Ramsundar
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21 views

Payroll Accounting

This document provides information about payroll processes including: 1) Payroll involves accurately paying employees their gross pay after deducting statutory amounts like taxes and non-statutory deductions. 2) Common payment methods include monthly, weekly, hourly rates and piece rates calculated based on work completed. 3) Payroll registers track employee earnings and deductions to calculate net pay each period. 4) Statutory deductions like income tax and social security must be withheld from gross pay.

Uploaded by

Adrian Ramsundar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Payroll

Methods of payment for Goods in Accounting

-Cash

-Cheques
-Credit cards
-Debit cards
-Bank giro credit (BGC) transfer
-BACS – this is the Bankers’ Automated Clearing Service
-Standing order
-Direct deposit (direct debits)
-Contactless payments
-Paying-in slips
- Electronic fund transfer and point of sale (EFTPOS).

Basic Source Documents of the Payroll

Time cards, time books, electronic clock-in cards, employee earnings records.

The main Computerised Accounting software used for payroll;


Many businesses today operate their payroll using a computerised package. This offers many
advantages, most importantly the speed and accuracy with which the payroll can be prepared.
Also errors are minimized and space is saved in keeping manual books.
Disadvantages, it is costly to maintain, loss of data and needs internet and electricity
Such accounting packages include Quick Books, Peach Tree Accounting and
Sage Accounting which are paid software. The most common and free software is Excel.

Functions of the payroll


The payroll is a list of employees that specifies the wage or salary that each employee receives.
The procedures and calculations which are necessary to produce this list need to be fully
understood and applied to ensure that all employees are paid promptly and correctly.
Irrespective of who carries out the function, that person must ensure that the payments are:
(a) Accurate:
(b) Regular and on time:
(c) Confidential:
(d) Secure

Payments to employees
Payments to employees may be made by wages or salary. Wages are usually paid weekly,
often in cash, and often to manual workers. Salaries are paid monthly by cheque or direct into
the employee’s bank account or building society.
Payment methods to employees
-Monthly Payment
-Weekly Payment
-Fortnightly Payment
-Daily Payment

Gross pay and Net Pay


All employees are subject to income tax and other deductions which have to be made by the
employer from the gross pay, and so it is important to distinguish between the gross pay figure
and net pay.
Gross pay is the amount of wage or salary due to the employee before any deductions are
made.
Net pay is the amount of wage or salary received by the employee after all deductions have
been made.
Methods of calculating pay
It is possible that not all employers will use the same methods for calculating pay. The pay
structure for employees may also vary depending on their particular job. The main methods are
as follows:
• Fixed amount of salary (usually per year) or wage (per week)
• Time rates – a fixed rate per hour multiplied by the number of hours worked.
• Piece rate – based on the number of units produced.
• Commission – usually a percentage based on the amount of sales made by the employee

1.Fixed amount of salary or wage


These represent an agreed annual or weekly wage.
Example 1: For an annual salary of $21,840 the monthly salary would be:
$21 840/12 =1, 820 per month
whereas an equivalent weekly wage would be a set figure of $420 ($21,840 divided by 52).

2.Time rates
Here, a fixed basic rate per hour is paid, multiplied by the number of hours worked.
Example 2: A bricklayer receives $12 per hour. If he works for 40 hours
during a particular week, his gross pay will come to: 40 hours x $12 = $ 480.00 per week.

If additional hours are worked, it is usual to pay overtime to each worker on this pay scheme,
and this payment is normally at a higher rate. Extra hours worked during the week are often
paid at ‘time and a quarter’, ‘time and a half’ and ‘double time’ is frequently paid for weekend
work.
If normal time is $12 per hour, then;
• time and a quarter is $12 × 1.25 = $15
• time and a half is $12 × 1.5 = $18
• double time is $12 × 2 = $24.
Example 3: We can look at the earnings of two workers. They are paid $12
per hour for a 40-hour week, time and a quarter for the next 10 hours, and
time and a half for any hours in excess of that.
3.Piece rate
Here, payment is based on the number of units produced or operations completed. The
employee is paid only for work completed although most employers agree a minimum wage
regardless of work completed. Piece ratepayment is an incentive to encourage workers to work
faster – although it is important to ensure that quality does not suffer as a result of faster
production.
Example 4: Lowe Production Co. manufactures parts for the motor-car
industry. It pays its workers piecework rates as follows:
• Part PCD 27 = $2.10
• Part JB 103 = $7.45
The company also has a minimum wage agreement of $175 per week. During the first week of
January, one of the workers, John Moss, produces 60 Part PCD 27s and 12 Part JB 103s. His
wage for the week would be:

Another worker, Philip Hanson, produces 50 Part PCD 27s and 8 Part JB 103s; his wage is
calculated by the piece rates as follows:

but because there is a minimum wage agreement, Philip Hanson will receive $175.
4.Commission
Commission is a percentage based on the amount of sales made by an employee. Commission
may be paid in addition to a basic salary or instead of a salary. Example 5: Carol Chapman and
Diane Dawson work for a computer software company. Their salaries are $12,000 and $10,800
respectively, plus commission of 1% of total sales made each month. During July, Carol’s sales
totalled $30,000 and Diane’s $17,000. Their July salaries would be as follows:

Time cards and time sheets


In many businesses, employees will have a time card that must be ‘punched’ in a special
machine when they arrive at work, and again when they leave work. The machine contains a
clock and a printing device that prints the times onto the time card when it is inserted into the
machine. It is from such time cards that time sheets are made out.

Statutory and Non-statutory Deductions


Deductions that an employer has to make by law from the employees’ gross pay are known as
statutory deductions. The most common are:
-Income tax (PAYE)-Pay as you earn.
-Social security contributions. (NIS)
-Health Surcharge
Non-statutory deductions are deductions made from pay at an employee’s request. They
include payments to:
-trade unions
-social clubs
-pension/superannuation schemes (note: some organisations may operate
non-contributory schemes).

Income tax
The pay of all employees is liable to income tax. Normally each person receives a non-taxable
personal allowance ( in Trinidad it is $ 7500 per month) that can vary relative to individual
circumstances. This allowance is then deductible from the gross pay to arrive at the taxable pay
which is then subject to income tax.
Example Simon Salary : $ 10, 000 Gross Salary
NonTaxable allowance is $7500
Income payable on $2 500

Income tax is 25% = 25% on $ 2500= $ 625.


Net Salary = $ 10000-$625 =$9 375
Calculation of Net Pay
Payroll Register

Note: D. Scott joined the firm at the start of week 7 of the accounting year. Hourly pay rates are:
regular rates J. Blake, $5; R. Marley, $6; D. Scott,$6. All overtime rates are at time and a half.
Completing the payroll register for week 10, we arrive at the figures in

Overtime- Blake =$5x1.5 =$7.50 , Marley and Scott=$ 6 x 1.5=$9

Let us see how the figures have been calculated for J. Blake.
• Column (3): 40 × $5 = $200
• (4): 8 × $5 × 1.5 = $60
• (6): Previous week’s total $2,100 + column (5) $260 = $2,360
• (7): 5% × column (5) = $13
• (11): columns (7) + (8) + (9) + (10) = $103
• (12): columns (5) – (11) = $157.

Employee’s earnings record


For each employee, there will be an employee earnings record, showing the full details
of the employee’s earnings for the accounting year on a week-by week basis. This will
be similar to the payroll register, except that each sheet will be for a separate employee.
Week 11- Blake overtime Double Time -$ 5 x 2 =$ 10

NIS =5% of Gross Salary $280= $14


Income Tax =25% of Gross Salary $280= $70

Past Papers
June 2017 –Question 5
(b) StoreCraft Cooperative owns a small hotel consisting of ten guest rooms called Crusoe
Getaway. The Cooperative employs a front desk manager, a housekeeper and a cook. Each
employee is paid using a different method of payment. The following information is presented to
you.

S. Vestiga Front Desk Manager - $3900 per month


L. Pattigow Housekeeper - $20 per guest room per day
P. Adams Cook - $15 per hour; double time for hours worked over 160 hours per month.
(i) Give the proper names of any TWO of the payment methods that may be used by
StoreCraft Cooperative.
-Monthly Payment
-Weekly Payment
-Fortnightly Payment
-Daily Payment
- Commission- But not applicable to this question

During March 2016, the payroll information was extracted and is shown below.

Statutory Deductions

NIS Pension Plan Income Tax after Voluntary Deduction


all Statutory
Deductions
S. Vestiga One month 5% 3% 10% $200 for credit
union

L. Pattigow 20 days worked


for all guest rooms
5% 3% 10% $300 for bank loan

P. Adams 172 hours 5% 3% 10%

(ii) Using all the information given, complete the form given. (N.B. You are to round off
numbers that are less than $1.00 and be sure to show your working.)

Date Working Gros NIS Pension Income Voluntary Net


s Pay Tax Deduction Pay
Mar Vestiga= NIS=5% of 3900 195 117 359 200 3029
3900=195
Pension =3% of 3900=117
Income Tax= 3900-195-
117=3588 x 10%=358.8
Net Pay =3900-195-117-359-
200=3029
Pattigow- $20 per room x 10 4000 200 120 368 300 3012
room per day=200 per day x
20=4000- Salary
NIS =5% of 4000=200
Pension =3% of 4000=120
Income Tax =4000-200-
120=3680 x 10%=368
Net pay =4000-200-120-368-
300=3012

Adams=160 x $15= 2400 2760 138 83 254 - 2285


Hours=172-160=12 hours
x(15x2) = 12 x 30=360
Salary =2400+360=2760
NIS=5% of 2760=138
Pension = 3% of 2760=82.8
Income Tax =2760-138-
83=2539 x 10% =253.9
Net Pay= 2760-138-83-
254=2285

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