Awash valley college ARIF M

Learning Guide- 28

Unit of Competence: process of Payroll System

MODULE TITLE: process of Payroll System

1
Awash valley college ARIF M

1. Explaining payroll, payroll system and its format

1.1. Definition of payroll and of payroll related terms
Payroll :

 Payroll : The concept of payroll is often referred to the total amount paid to employees of a
firm as a compensation for the service rendered to a firm in a given period of time. The
payroll accounting of a firm has to be given emphases.
 Employees are sensitive to payroll errors and irregularities, and maintaining good employees
moral requires that the payroll be paid on a timely, accurate basis.
 Payroll expenditures are subject to various government regulations.
 The payment for payroll and related taxes has significant effect on the net income of most
business enterprises
 Accounting for payroll is important because payroll represents the largest expense that a
company incurs.
 both federal and state governments require keeping detailed payroll records. The timely error
free preparation of the payroll has motivational impact on employees.
Salary:
 Is a payment for managerial, administrative or similar services
 It is paid based on monthly or yearly bases
Wages:
 It is remuneration for manual labor (both skilled & unskilled).
 It is paid based on hours worked, number of units produced and peace of work done.
Bonus:
 It is an additional payment to the regular wage and salary; usually based on the
productivity of employees.
Gross pay:
 It is total earning of an employee for payroll period.
Pay period:
 It is the length of time covered by each payroll payment such as a month or a week.
Pay day:
 It is the day on which wage or salary is paid to employees
 This is usually the last day of pay period.
Employee:
 It is a person who works primarily to one organization and who is under direct
control of the employer
Overtime payment:
 It is a payment for employees for excess work hours.
Deductions:
 They are amounts deducted from gross payment of employees like income taxes,
pension and others social contributions.
Allowance:
 It is the money paid to an employee for special reasons.
Net pay:
 It is the excess of gross earnings over total deductions.
 Preparing payroll system
Payroll register or sheet:
 It is a list of employees along with their earnings, deduction, net pay (take home) for
particular pay period.

Process of payroll system / establish & maintain payroll system 2

Awash valley college ARIF M

 The entire list of employees of a business along with each employee’s gross earnings, deductions and
net pay (or the take home pay) for a particular payroll period. The basics for the preparation of the
payroll register can be the attendance sheets, punched (clock) cards or time cards.
 Employee Earnings Record: It is a summary of each employee’s earnings, deductions, and net pay
for each payroll period and of cumulative gross earnings during the year. It is a separate record kept
for each employee. The individual employees’ earnings record helps the employer organization to
properly summarize and file tax returns.
 Pay Check: An instrument for paying salary if the firm makes payment via writing a check in the
name of each employee for the net pay or a check for the total net pay.
 Gross Earnings: is the total pay to an employee before deductions for the pay period.
 Payroll Taxes: These are taxes levied against the employer on the payroll of a firm? It is an additional
payroll related expense to an employer.
 Payroll Deductions: All the reductions from the gross earnings of an employee such as withholding
taxes, union dues, fines, credit association pays, etc.
 Net Pay: The gross earnings after subtracting all the deductions. An employee on the payday
sometimes knows it as take home pay the amount collected.
 Possible Components of a Payroll Register
1. Employee number:.
2. Name of employees:
3. Money earned by an employee(s) of a firm from various sources
 Employee number: Numbers are assigned to employees for identification purpose when a
relatively large number of employees are included in the payroll register.
 Name of employees: List of the names of employees.
 Money earned by an employee(s) of a firm from various sources
 Employee number:
 Number assigned to employees for identification purpose when a relative large
number of employees are involved in a payroll register
Pay check:
 A business may pay payroll by writing a check for the amount the net pay. A check is
prepared in the name of each employee and handed to employees. Alternatively,
other employees may be paid in cash though the cashier of the organization. In this
case, a check for the total net pay can be prepared for all employees.
Signature:
 Payroll register of every organization may include signature column at the end for
employees paid in cash.
 Payroll addition, deduction and others
Earnings:
Earnings of an employee includes:-
1. Basic salary:-
 It is a flat monthly salary of an employee for carrying out the normal work of
employment.
 It is subject to change when employee is promoted.
2. Allowance:
 It is a payment of money to employees for special reasons
 It may include:-
A. Position allowance:
 It is a payment to an employee for carrying a particular office responsibility or assuming
particular position.
B. Housing allowance:

Process of payroll system / establish & maintain payroll system 3

 Awash valley college ARIF M

 It is the monthly amount given to an employee to cover housing costs. This is the case when
the employment contract specifies to be paid.
C. Hardship allowance:
 It is the sum of money given to employee to compensate for inconvenient circumstances
caused by employer. E.g. unexpected transfer to different and distance work area.
D. Dessert allowance:
 This is monthly allowance given to employees because of assignment to a relatively hot
region.
E. Transportation (fuel) allowance:
 This is a monthly payment to employees to cover cost of transportation to his/her work place
if the employer has committed his or him itself provide transportation service.
 Overtime earning(OTE):
It is a work performed by an employee beyond the regular working hours. Overtime earnings are
the amount paid to an employee for overtime work performed.
I. 125% (1.25) ordinary hourly rate: - this is payment for overtime work performed before 10
pm in the evening. If the ordinary overtime hourly rate is birr 5 and the employee worked for
1 hour before 10 pm but after regular time, the OT amount is birr 6.5(i.e. 5* 1.25*1). If an
employee worked for three hours during the stated time, the OT amount is equal to birr 19.5
(i.e. 5*1.25*3).
II. 150% (1.5) ordinary hourly rate: - this rate is used to compute overtime amount if any
employee worked between 10 pm and 6 am in the morning. If any employee worked for 1
hour during 10 pm to 6 am he/she will be paid overtime amount of birr 7.5(i.e. 5*1.5*1)
III. 200 %( 2.00) ordinary hourly rate:- this rate is used to compute over time amount if the
employee worked on rest days. The normal rest days in Ethiopia are Saturday and Sunday.
For instance, if the hourly ordinary rate of the employee is birr 5 and if he or she worked 1
hour on hi/her rest day, the OT amount is equal to birr 10 (i.e.5*2*1).
IV. 250 % (2.50) ordinary hourly rate:- this is the OT rate to be paid to an employee who
worked on public holidays, for example, if an employee’s ordinary hour rate is birr 5 and if he
or she worked for 1 hour on public holly day, his/her OT earning is equal to birr 12.5 (i.e.
5*2.5*1) .
 On other hand
A worker shall be entitled to be paid at a rate of one and one quarter (1 1/4) times his/her
ordinary hourly rate for overtime work performed before 10 O’clock in the evening (10 p.m.).
A worker shall be paid at the rate of one and one half (1 ½) times his/her ordinary hourly rate
for overtime work performed between 10 o’clock in the evening (10 p.m.) and six O’clock in
the morning (6 a.m.).
Overtime work performed on the weekly rest days shall be paid at a rate of two (2) times the
ordinary hourly rate of payment.
A worker shall be paid at a rate of two and half (2 ½) times the ordinary hourly rate for
overtime work performed on a public holiday
Salary /HR = Basic salary
No. of normal working hours in a month
Basic salary
8*5*4
OT = WHr * Duration * salary per hour

Process of payroll system / establish & maintain payroll system 4

Awash valley college ARIF M

Hence, the gross earnings of an employee may, therefore, include the basic salary, allowances
and overtime earnings. You may find some times other form of earnings such as bonus that is
paid to employees for achieving results better than usual.
Gross earning = B.S + Allowance + OT+ Other income
 Deductions
 These are subtractions made from the earnings of employees either due to required by
government or permitted by the employee himself.
 Employee income Tax :-
 Every taxable individual who generates income from government organization
 Is deducted from All organizational Government payment such as :- salary , wage &
bonus etc…
 Method of determining employment income tax
Step 1- Gathering the necessary data. All the relevant information about every employee should
be gathered.
Step 2- Determine the gross employment income. Include all types of income like Basic salary,
allowance, over time and other
Step 3- Determine taxable employment income. By subtract exemption from gross employment
income.
Step 4- compute the employment income tax by multiplying the given tax rate on taxable
employment income.
Note: that the OT earning rate in a higher academic institution for academic staff is not the same
as above
Deductions They are subtractions made from the total of earning of an employee. Some of these
deductions are mandatory (a must) and others are permitted or authorized by the employee him or
herself. These deductions include employee income tax, pension (provident fund), credit
associations, penalty, member ship fee and etc.
Taxable income( Per month) Rate Deductions
0-600 Tax exempted 0

601-1650 10% 60

1,651-3,200 15% 142.5

3,201-5,250 20% 302.5

5,251-7,800 25% 565

7,801-10,900 30% 955
Over 10,900 35% 1500

Table 2.2 Taxable income range

Taxable income includes any payment or gains in cash or in kind received from employment by
individual. All earnings in a month may not be taxable. According to proclamation No. 286/2002;
the following earnings are not taxable

Process of payroll system / establish & maintain payroll system 5

 Awash valley college ARIF M

i. An income from employment received by casual employees who are not regularly employed,
provided that they do not work for more than one month for the same employer in any twelve
months period.
I. Pension contribution, provident fund, and all forms of retirement benefits contributed by
employers in any amount.
II. Payments made to an employee as a compensation or gratitude in relation to:-
-Personal injuries suffered by the employee
-The death of an employee
Besides, the regulation of the council of ministers that was issued pursuant to the income tax
proclamation further exempts the following earnings from income tax.
1. Amounts paid by the employers to cover the actual cost of medical treatment of
employees.
2. Allowance in view of transportation
3. Hardship allowance
4. Amounts paid by employees in reimbursement of traveling expenses incurred on duty.
4.2) Pension contribution: -In Ethiopia, permanent employees of government organizations are
required to pay /contribute 7% of their basic salary to their pension scheme. This amount is with
held by the employer from each employee on every payroll date and later paid to social security
authority.
The employer is also required to contribute to employee's pension scheme 11% of the basic
salary of every permanent government employee. Therefore, the total contribution to the pension
fund is equal to 18% of the employee's basic salary.
Private and non-governmental non-business organizations (NGOS) in Ethiopia are required to
contribute to provident fund (not pension fund).Although both the employer and the employees
are required to contribute to this fund; their contributions are 10% and 5% respectively.
4.3) Contribution to credit association:-is a voluntary contribution in the sense that the
employee him /her self permit its deduction from the basic salary. It may be permitted
(Authorized in % or lump sum amount).
4.4)Other deductions:-in addition to the above three deductions, an employee may authorize
some deductions such as payment to life insurance policy, payment to loan from the employer
and other parties, donation to charitable organizations (needy),contribution to Idir and the like.
After all deductions are included in the payroll register, total deductions have to be determined.
Thus:-
Total deductions=Employee income tax+ pension (provident contribution) +contribution
to credit association +other deductions
3. Net pay (Take home):-Net pay represents the excess of gross earnings over total Deductions.
Net pay = GE - Total deduction

Process of payroll system / establish & maintain payroll system 6

Awash valley college ARIF M

6. Signature:-The payroll register of an organization may include signature column at the end for
employees paid in cash. After the payroll register is prepared and approved, journal entry is made
to record the payroll expenditures. This entry may be as follows:-
Salaries expense-------------------------------------xx
Employee income tax payable ------------------xx
Pension contribution payable--------------------xx (7%)
Cash------------------------------------------------xx
Payroll tax expense -------------------------------xx (11%)
Pension contribution payable ------------------xx
Pension contribution payable ----------xx
Cash------------------------------------------------xx
 Procedures in payroll Accounting
Accounting for payroll involves the following procedures
1. Gathering the necessary data
2. All the relevant information about every employee should be gathered. This requires
reviewing various documents such as employment contract, attendance sheet and the like.
3. Entering the gathered data in to the payroll register:-This involves entering employee number,
employee name and earnings and deductions and compute the net pay.
4. Totaling and proving the payroll register
5. Verify the accuracy and authenticity of the payroll register. This is performed by another
person than the one who prepared it.
6. An authorized person will approve the payroll
7. Record payroll entry in journal entry form
8. Paying the payroll either in cash or by writing a check
9. Paying payroll with holdings to the concerned parties
Exercise 1
Ministry of Agriculture has the following employees in different regions of Ethiopia ATVET
colleges. Their salaries are paid According to the calendar month. The following data are
compiled for the month Megabit 2000.
Emp.no Name of employee B.S Allo ype Amount OT hrs Duration of
worked OT work
1 Eyob 8250 House 500 - -
2 Medhanit 846 - - 5 Holidays
3 Dawit 1980 Trans 300 - -
4 Ali 1340 Position 400 - -
5 Meskerm 2150 Hardship 150 6 10pm-6am
6 Benty 972 Desert 30% 8 Before 10pm
7 Selam 532 - - 10 Saturday
Additional information
 No absence during the month and
 All are permanent except Selam.
 Ali & Eyob authorized10% of their basic salary for credit association.
 All employees required to work 8hrs, 5 days in a week.
Required:
1. Prepare payroll register for the month

Process of payroll system / establish & maintain payroll system 7

Awash valley college ARIF M

2. Record payment of payroll as of Megabit 30,2000

3. Record payment of withholdings to concerned parties
4. Compute and record employee’s share of payroll tax and its payment to pension fund.
Exercise 2 XYZ Company pays payroll to its employees based on the Ethiopian
payroll system On the month of sene 30,2022
Name Basic Salary Allowance Overtime Duration of OT work
worked

Abel Tena Br 4,000 250 30 hours Up to 10:00 PM

Sara Chala 3,200 500 20 hours 10:00 to 6:00 AM

Nega Girum 10,000 100 10 hours, 18 Weekends, public

hours holiday respectively

Additional Information:
1. All employees are expected to render services of 160 hours per month and all of them
did except Sara Chala who has served only 150 hours.
2. All employees are permanent employees except Abel Tena.
3. The allowance of Nega Girum is not taxable
4. All employees promised to contribute 10% of their basic salary to the credit
association of the Company.
Required:
a. Determine the gross earnings, total deductions and net pay of all employees and
b. record the following journal entries:
Exercise 3 Beza Company pays payroll to its employees based on the Ethiopian payroll system.
The following data pertains to the employees of the company for Assume the payment made on
June 10, 1997.
Name Basic Salary Allowance Overtime worked Duration of OT work
ARAYA TIGU Br 6,400 150 30 hours Up to 10:00 PM
SAMI CHERU 8,000 100 20 hours 10:00 to 6:00 AM
ZENASH TOLA 16,000 180 20 hours, 16 hours Weekends, public holiday

Additional information
 Each employee has to work 160 hours
 Araya Tigu worked only 150 hours without justifiable reason and early in June he
has also taken Br 1,000 advance out of his salary to be deducted in four equal
installments beginning June 30, 1997.
 SAMI CHERU is not permanent employee of the company and
 ZENASH TOLA informed the company to send Br 200 from her salary to the family at a
distance.

Process of payroll system / establish & maintain payroll system 8

 Awash valley college ARIF M

Required:
a. Determine the gross earnings, taxable income, total deductions and net pay of all
employees and.
b. Record the following journal entries.
i. Payment of net pay to the employees in cash.
ii. Recognition of the payroll tax expense of the employer.
iii. Payment of withhold and payroll tax liabilities to the concerned authority.
Exercise 4- ABC Company pays payroll to its employees based on the Ethiopian payroll
system. The following data pertains to the employees of the company for June 1997:

Name Basic Salary Allowance Overtime Duration of OT work

worked

Abdi chala Br 7,000 900 30 hours Up to 10:00 PM

Sartu Chala 6,200 800 20 hours 10:00 to 6:00 AM

Nega Girum 45,00 1000 10 hours, 18 Weekends, public holiday

hours respectively

Additional information
 No absence during the month and
 All are permanent
 Abdi& nega authorized 5% of their basic salary for credit association.
 All employees required to work 8hrs, 5 days in a week.
Required:
I. Prepare payroll register for the month
II. Record payment of payroll as of june 1997
Exercise 5 The following information is given for XYZ Company ON the hamle 23,2016
S.N Name of Basic Representational Fuel OT Hrs. Duration of OT
Employee Salary Allowance Allowance worked OT works Rate
1 Tolera 5,5200 750 200 litters - - -
2 Chala 3,700 350 150 litters 6 hrs. Weekend 2
3 Sifan 855 - - 10 hrs. 10pm to 6am 1.5
4 Keneni 2,860 150 100 litters 6 hrs. Holiday 2.5
5 Harun 1,520 - 50 litters 6 hrs. Holiday 2.5
 Additional Information
 The management of the company expects all employees to work 40 hrs. per week
and all employees have worked as they have expected.
 Sifan is a Casual Employee
 Tolera and Chala monthly contribute 10% of their basic salary to credit
association as monthly saving whereas Keneni contribute 5% of his basic salary.
 Upto 900 birr fuel Allowance is exempted form tax and the selling price of one
litter is Birr 15
 Pension is given as 6% from employee and 9% from employer.

Process of payroll system / establish & maintain payroll system 9

Awash valley college ARIF M

Instruction:
1. Prepare a Payroll Register
2. Pass the necessary journal entries.
EXERCISE 6 global insurance PLC. pays payroll to its employees based on the
Ethiopian payroll system On the month of Nehse 20,2022
No Name of Eee B/S ALL Over time

1 Tesfahun 7600 600 250

2 Haile 1230 705 600

3 Daniel 3200 560 400

4 Berya 6000 800 300

Additional information
 The company paid allowance 10% of basic salary for each employee
 All employee allowance is taxable
 Pension contribution is 9 % from Employer and 7% from employee
 All employee is permanent
 Bank service charge of each employee is 20 birrs paid by the employer
Required: -
Task 1.1 Prepare Payroll Registered Sheet
Task 1.2 Record the Journal entry for the month of June, 2015
Task 1.3 records the Journal entry for the payment of Payroll Liability

Process of payroll system / establish & maintain payroll system 10

Awash valley college ARIF M

Learning Guide- 28

Unit of Competence: Establish and Maintain a Payroll System

MODULE TITLE: Establishing and Maintaining a Payroll System

LG Code: BUF ACB4 09 LO1

TTLM Code: BUF ACB4 M0 TTLM 0220/ V2

Process of payroll system / establish & maintain payroll system 11

Awash valley college ARIF M

 Recording payroll data

 Payroll : The concept of payroll is often referred to the total amount paid to employees of a
firm as a compensation for the service rendered to a firm in a given period of time. The
payroll accounting of a firm has to be given emphases.
 Employees are sensitive to payroll errors and irregularities, and maintaining good employees
moral requires that the payroll be paid on a timely, accurate basis.
 Payroll expenditures are subject to various government regulations.
 The payment for payroll and related taxes has significant effect on the net income of most
business enterprises
 Accounting for payroll is important because payroll represents the largest expense that a
company incurs.
both federal and state governments require keeping detailed payroll records. The timely error free
preparation of the payroll has motivational impact on employees

 There are three body of payroll system

I. Payroll addition
Gross earning = B.S + Allowance + OT+ Other income
II. Payroll deduction
Total deductions= EIT+ pension +credit association + cost sharing + other deductions
III. Payroll others
Net pay (Take home):-Net pay represents the excess of gross earnings over total Deductions.
Net pay = GE (B.S +OT +ALL+ Other income) - TD (EIT +PEN+ C.SH+ CR.ASS+ others
 Definition of payroll and of payroll related terms
Pension -In Ethiopia, permanent employees of government organizations are required to pay
/contribute 4% of their basic salary to their pension scheme.
The employer is also required to contribute to employee's pension scheme 6% of the basic salary
of every permanent government employee. Therefore, the total contribution to the pension fund is
equal to 10% of the employee's basic salary
According to this learning guide if we compute Employee income tax by using old Ethiopian
employee income tax rate

 Old Ethiopian Taxation Rate

No. Taxable monthly income(Birr) Rates of tax (%) Deduction (Br.)
1 0 – 150 Exemption Exemption
2 151 – 650 10% 15
3 651 – 1400 15% 47.5
4 1401 – 2350 20% 117.5
5 2351 – 3350 25% 235
6 3351 – 5000 30% 412
7 >5000 35% 662

Process of payroll system / establish & maintain payroll system 12

Awash valley college ARIF M

 Methods of employment income tax computations

There are two methods are used to compute employment income tax.
1. Progression method
The amount of tax is calculated for each layer of tax bracket by multiplying the given rate under
schedule A For each additional income.
2. Deduction methods
Income Tax =Taxable Income x tax rate - Deduction

Contribution to credit association:-is a voluntary contribution in the sense that the

employee him /her self permit its deduction from the basic salary. It may be permitted
(Authorized in % or lump sum amount).
Other deductions:-in addition to the above three deductions, an employee may authorize
some deductions such as payment to life insurance policy, payment to loan from the employer
and other parties, donation to charitable organizations (needy),contribution to Idir and the
like.
Total deductions=Employee income tax+ pension (provident contribution) +contribution
To credit association +other deductions
4. Net pay (Take home):-Net pay represents the excess of gross earnings over total Deductions.
Net pay = GE - Total deduction
6. Signature:-The payroll register of an organization may include signature column at the end for
employees paid in cash. After the payroll register is prepared and approved, journal entry is made
to record the payroll expenditures. This entry may be as follows:-
1. Salary expense
Salaries expense-------------------------------------xx
Employee income tax payable ----------xx
Pension payable--------------------xx (4%)
Cash------------------------------------------------xx
2. Pension fund
Payroll tax expense -------------------------------xx (6%%)
Pension contribution payable ------------------xx
3.Payment of liability
EIT ----------------------------------------------- XXX
Pension plus pension contribution -------------xxx
CR Association -------------------------------------xxx
Salary payable ---------------------------------------xxx
Cash----------------------------------------------------xxxx
 Handling payroll enquiries
 Responding payroll enquiries
Accounting for payroll involves the following procedures
1. Gathering the necessary data

Process of payroll system / establish & maintain payroll system 13

 Awash valley college ARIF M

2. All the relevant information about every employee should be gathered. This requires
reviewing various documents such as employment contract, attendance sheet and the like.
3. Entering the gathered data in to the payroll register:-This involves entering employee number,
employee name and earnings and deductions and compute the net pay.
4. Totaling and proving the payroll register
5. Verify the accuracy and authenticity of the payroll register. This is performed by another
person than the one who prepared it.
6. An authorized person will approve the payroll
7. Record payroll entry in journal entry form
8. Paying the payroll either in cash or by writing a check
Paying payroll with holdings to the concerned parties
Exercise 1
Ministry of Agriculture has the following employees in different regions of Ethiopia ATVET
colleges. Their salaries are paid According to the calendar month. The following data are
compiled for the month Megabit 2000.
s.no Name of employee B.S All,,,Type Amount OT hrs Dur ,,OT work
worked
1 Aberra 5282 House 530 - -
2 Chaltu 2018 - - 5 Holidays
3 Bekama 1170 Trans.. 350 - -
4 Aliyi 2069 Position 550 - -
5 Rumana 2500 Hardship 500 6 10pm-6am
6 Bruk 921 Desert 300 8 Before 10pm
7 Selam 133 - - 10 Saturday
Additional information
 All are permanent except Selam.
 Chaltu & Aliyi authorized 15.3% of their basic salary for credit association.
 Bekam & Bruk are authorized 11.5% of their of their OT for penalty
 All employees required to work 8hrs, 5 days in a week.
Required:
 Prepare payroll register for the month
 Record necessary journal entry for the month of megabit 2000
Exercise 2 Anbessa plc comp. are payroll registered for their employee on the month of hamle
20,2022
s.no Name Basic Salary Allowance OT worked Duration of OT work

1 Abdi 1600 235 25 hours Up to 6:00 AM

2 Sifan 5200 600 18 hours Up to 10:00 AM

3 Garoma 15,00 700 10 hours, 18 Regular , public holiday

hours respectively

Process of payroll system / establish & maintain payroll system 14

Awash valley college ARIF M

 Additional Information:
 All employees are expected to render services of 160 hours per month and all of them
did except Sifan who has served only 147 hours.
 All employees are permanent employees except Abdi
 The allowance of Garoma is fuel allowance
 All employees promised to contribute 15% of their basic salary to the credit
association of the Company.
 Required:
 Prepare payroll registration ( sheet)
 record the necessary journal entry for the company
Exercise 3 wusha Company pays payroll to its employees based on the Ethiopian payroll
system. The following data pertains to the employees of the company for June 2011:

s.no Name Basic Salary Allowance Overtime Duration of OT

worked work
1 AYantu Br 1,400 850 20 hours Up to 10:00 PM
2 Birra 3400 700 17 hours , 13 hr Normal , rest day
3 Bikila 1200 280 22 hours, 16 Evening , public
hours holiday

Additional information
 Each employee has to work 160 hours
 Ayantu worked only 142 hours without justifiable reason and early in June he has
also taken Br 1,150 advance out of his salary to be deducted
 Birraa is not permanent employee of the company and
 Bikila informed the company to send Br 700 from her salary to the family at a
distance.

 Required:
 Prepare payroll sheet for the year
 Record the three of journal entry
Exercise 4 Birbir Company pays payroll to its employees based on the Ethiopian payroll
system. The following data pertains to the employees of the company for June 2017:
Name Basic Salary Allowance Overtime worked Duration of OT work

MR. A Br 6,400 500 3 hours Up to 10:00 PM

MR. X 5200 300 12 hours 10:00 to 6:00 AM

Process of payroll system / establish & maintain payroll system 15

 Awash valley college ARIF M

MR. B 5500 280 8 hours, 9.5 hours Weekends, public

holiday respectively

Additional information
 Each of All employee are worked 160 hours but mr. A worked only 150 hours
without justifiable reason and early in June he has also taken Br 1100 advance
out of his salary to be deducted
 Allowance of mr. B are disturbance allowance
 Mr.X is not permanent employee of the company and
 Mr .B informed the company to send Br 200 from her salary to the family at
other location

Required:
 Prepare payroll sheet
 Record journal entry for the company

Exercise 5
ABC Company pays the salary of its employees according to the Ethiopian Calendar month. The
forth-coming data relates to the month of Hidar, 1998.
S/No. Name .E… B.Salary Allowance OT whr Duration
1 Senayit 2080 100 10 Up to 10 p.m.
2 Petros 640 --- 8 10 p.m. to 5 a.m.
3 Abdu 1280 --- 6 Weekly Rest Days
4 Leila 960 50 --- ----
5 Kiros 480 50 10 Public Holiday
Additional information
 all workers of this agency are permanent employees except Petros
 the monthly allowance of Kiros is not taxable;
 Abdu agreed to have a monthly Br. 200 be deducted and paid to the Credit Association of
the Agency as a monthly saving.
Based on the information given above:
 Prepare a payroll register (or sheet) for the agency for the month of Hidar, 1998.
 Record the necessary journal entry
Exercise 6 The following information is given for XYZ Company on the hamle 09 , 2014 :
S.N Name of Basic Representational Fuel OT Hrs. Duration of OT
Employee Salary Allowance Allowance worked works
1 W 5,200 750 300 litters - -
2 X 3,500 350 450 litters 6 hrs. Weekend

Process of payroll system / establish & maintain payroll system 16

Awash valley college ARIF M

3 Y 8550 - - 10 hrs. 10pm to 6am

4 Z 1860 150 80 litters 6 hrs. Holiday
5 B 1,820 - 500 litters 6 hrs. Holiday

 Additional Information
 The management of the company expects all employees to work 40 hrs. per week and all
employees have worked as they have expected.
 Mr.Y is a Casual Employee
 Mr.W and X are monthly contribute 15% of their basic salary to credit association as
monthly saving whereas Mr.B contribute 10% of his basic salary.
 Upto 1200 birr fuel Allowance is exempted form tax and the selling price of one litter is
Birr 15.13 BIrr
 Pension is given as 6% from employee and 8% from employer.

Exercise 7
 RAL company are Payroll registered for their employments during the month of sene
30,2009
S.N Employee Name Basic Salary OT Allowance (Br)
1. Ali 270 - -
2. Mengesha 340 50 -
3. Neger 420 180 50
4. Hussein 510 60 -
5. Nuri 600 120 100
6. Molla 285 75 -
Additional Information:
All employee are permanent except molla
All employees are to pay Idir fees of:
(1) Birr 60 for all employees whose basis salary is up to Birr 500.00.
(2) Birr 80 for all employees whose basic salary is above Birr 550.00
All employees are required to pay Union fees of 3% of their basic salaries (assume that all
employees are members of the Labor Union).
Ato mengesha , Nuri, Ato hussein contribute 5% & remaining are 7% of their basic
salaries for the Credit Association of the Company.
INSTRUCTIONS
1. Prepare the payroll register
2. Prepare a journal entry to record for the month of Sene 30,2009

Thank you ALL MY students!!!

Process of payroll system / establish & maintain payroll system 17