ACCA FA1 SESSION 9
PAYROLL
Slides By Nelson Pande
LECTURE OBJECTIVES
By the end of this session you should be able to:
understand payroll systems
understand the duties of employers in relation to taxes,
state benefit contributions and other deductions
record hours worked: timesheets, clock cards
calculate gross wages for employees paid by hour, by
output (piecework) and salaried workers
define and calculate bonuses, overtime and commission
given the details of each scheme
describe the documentation required for recording
various elements of wages and salaries and
answer questions relating to these areas.
PAYROLL
A payroll is a list of the employees of the organization and
the money due to each.
A payroll list is produced each time that
employees are paid.
• Wage earners are paid weekly.
• Salary earners are paid monthly.
GROSS PAY, NET PAY
AND DEDUCTIONS
GROSS PAY
This is the total amount earned in a week or month
by an employee before any deductions.
VOLUNTARY
STATUTORY OR NON
DEDUCTIONS STATUTORY
DEDUCTIONS
DEDUCTIONS
Pass Tuition Centre
Deductions
required by
law
Statutory Pay As You
Deductions Earn (P.A.Y.E)
National
Insurance
Pass Tuition Centre
Statutory deduction varies depending on the
country of employment.
NON STATUTORY DEDUCTIONS
Non-statutory deductions are voluntary deductions
from pay that the employee chooses to make.
Examples include:
subscriptions to a trade union
contributions by the employee to a pension
scheme
Medical aid contributions
PRACTICE QUESTION
The following figures have been extracted from a
trader’s records in respect of wages and salaries for
January:
(i) Wages and salaries (gross) $10,300
(ii) Income tax $3,600
(iii) Employees’ pension contributions $1600
(iv) Employer’s pension contributions $800
What is the total amount the trader will have to pay
for wages and salaries for January?
$
PROCESSING THE
PAYROLL
To process the payroll, an employer MUST, for each
employee:
Calculate gross earnings and deductions
Calculate Net Pay
Prepare a Payslip showing gross pay, deductions,
and Net pay
Pay the employee his or her Net Pay
Calculate the employer benefit contribution
The employer must:
Make the payments of all the deductions from
pay and the employer's state benefit
contributions to the appropriate other
organizations.
Record the payroll costs in the accounting
system.
PAYSLIPS
A payslip is a document provided by an employer to
an employee that details the amount of money
earned for a specific pay period.
It must show gross pay, deductions, and net pay.
Banks Automated
Bank Giro
Clearing System
transfer
(BACS).
Cash Cheque
WAYS OF PAYING
EMPLOYEES WAGES
PRACTICE QUESTION 1
Which of the following does not appear on a payslip?
A Gross weekly wage for the employee
B Tax paid to date by the employee in the tax year
C Deductions paid by the employee
D Details of the employee’s expected pension
PRACTICE QUESTION 2
Which is the most convenient way for a large
employer to pay salaries electronically?
A BACS
B Bank giro transfer
C By cash
D By cheque
BASIC PAY
CALCULATIONS
PRACTICE QUESTION
Peter, Paul and Mary are three employees, each paid
by piecework. The terms of their employment are as
follows:
(a) Peter is paid a flat rate of $2.50 for every box he
produces. In one week he produces 120 boxes.
(b) Paul is paid $0.99 for every box he produces, with
a guaranteed minimum wage of $80 per week. One
week he produces 75 boxes.
(c) Mary is paid $1.33 each for the first 125 boxes she
produces, and $1.47 for subsequent boxes. One
week she produces 150 boxes.
How much basic pay will each employee receive that
week?
PRACTICE QUESTION 2
Susan normally works a 35 hour week, and is paid $5
per hour. In one week she works 12 hours of
overtime, one hour each week day, and 7 hours on
Saturday.
How much is her overtime pay if:
(a) She is paid time and a half for all overtime hours?
(b) She is paid time and a half for evening overtime
and double time for weekend overtime?
(c) She is paid time and a half for the first 8 hours
overtime and double time thereafter?
PRACTICE QUESTION 3
Kyle works a 35-hour week for an annual salary of
$18,200. He is expected to work up to 5 hours of
overtime for no extra pay, but thereafter will be paid
overtime pay at the rate of time and a half.
One week he works 8 hours of overtime.
What is his overtime pay?
PRACTICE QUESTION 4
Karen is paid commission of 6% on the first $20,000
of sales, and 9.5% on any sales in excess of this
amount. However she is only paid the commission
when either the customer has paid for the order, or
has taken out a financing agreement.
In October she made sales of $35,000. However two
customers refused to pay or take out a financing
agreement. One had ordered goods costing $1,500,
and the other goods costing $2,500.
How much commission will Karen receive?
ACCOUNTING FOR
PAYROLL COSTS
Payroll costs are an expense for the employer, and the
expense should be recorded in an expense account in the
general ledger.
The net pay has to be paid to the employees immediately,
while the various deductions from pay have to be paid to
the respective outside agencies.
Deductions
Net pay
Dr Wages and Salaries Control
Dr Wages and Salaries Control
account
account
Cr A payable account for the
Cr Bank account
outside agency.
Gross pay Employer’s contribution
Dr Wages and Salaries Expense Dr Wages and Salaries Expense
account account
Cr Wages and Salaries Control Cr Wages and Salaries Control
account account
Posting the payroll to the
main ledger
At the end of this process, the balance on the
Wages and Salaries Control account should be
nil.
EXAMPLE
Here are the totals from TTC's January payroll:
Total gross pay $6,172.20
Total employer's state benefit $488.20
Total income tax $1,029.96
Total employees' state benefit $445.20
Total net pay $4,697.04
Post the above to the relevant main ledger accounts
and balance the control account.
PRACTICE QUESTION
PRAECTICE QUESTION
EXAM TYPE QUESTIONS
Ali picks fruit. He is paid depending on the number of boxes
of fruit he picks. By what method of remuneration is Ali
paid?
A Commission
B Paid by the hour
C Piecework
D Salaried
Wilson has a basic salary of $2,000 for the month. His
income tax on the salary is $350 and state benefit
contributions amount to $180. His employers also pay state
benefit contributions of $210.
In June Wilson is also entitled to a bonus of $100 on which
no tax or deductions are payable.
How much is Wilson’s take-home pay for June?
A $1,260
B $1,360
C $1,540
D $1,570
Sue earns a basic rate of $5.00 per hour for a 35-hour week.
She is paid time and a half for any additional hours. Last
week Sue worked 43 hours.
What is Sue’s gross pay for last week?
A $175
B $215
C $235
D $322.50
