ACCOUNTANCY FORM 6 – PAYROLL ACCOUNTING/EMPLOYEES PAY

All business entities have to pay employee’s for the services. An employee is the one who perform services, subject to the supervision and control of another part known as an employer.

Relationship between employee and Employer

The employer has the power to terminate services offered by the employee.

Employer sets the hours of work for the employee’s. The employer provides to the employees with place to work.

Objective of Payroll Accounting

-To provide accurate payment of remuneration to employee promptly

-To provide and maintain the necessary employee and employer record statements and any report relevant to and required by the government agencies and statutory.

-To prevent fraud

-To control salaries and wages expenses                     

Employees are paid either a wage or a salary. If you see an advert for a job and it mentions that the rate of pay will be pound 8 per hour that is an example of a wage. If on the other hand, an advert refers to an annual amount that is a salary.
Wage is paid daily or weekly depending on hours worked WHILE Salary is paid at the end of every month.

Basic Pay

Is made up of an employee’s remuneration fixed at the time of employment before taking accounts of other benefits.

• Salary are not linked to weekly or piece rate, they are paid on a monthly basis
  
• Wages are associated with employee’s paid weekly, often on the basis of a piece of an hourly rate.
  

  Monetary Benefits
  

  There are certain benefit’s some time are accrue, to employee’s when such benefits are received in monetary form they increase employee’s monetary earning and are part of payroll form e.g. transport allowance, Housing Allowance.
  

  Some of the benefits are exempt from tax and some are not. It is important to distinguish the tax status in order to compute. (Pay as you earn) Tax.
  

 

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Gross Pay

Is obtaining by the summation of all sources of employee’s and overtime payments. Gross means before deductions.

PAYROLL DEDUCTION AND STATUTORY CONTRIBUTIONS

Payroll accounting is significant influenced by legislation and acted by government. This law affects payroll accounting because they levy taxes based on payroll amounts and their exactly statutory contribution by both employer and employee.

1. STATUTORY CONTRIBUTIONS

(a) Payee tax (Pay as you earn)

Income tax Act (1973) and financed bills passed each budget session governed payment of individual tax. Is a tax levied on monthly income of individuals.

Monthly income for this purpose will be Gross pay reduced by earning which are not taxable.

(b) NSSF, PPF, PSPF, LAPF NHIF and Others

NSSF Act requires every employee and employer toward the fund. Upon retirement a lump-sum is paid to employee from the fund depending on his contributions;

(i)   Employee contribution (10% at the basic pay)

(ii)   Employer contribution (10% at the basic pay)

Others

PPF 5% to be contributed by the employee and 15%  be contributed by the employer.
PSPF employee and employer contribute 10% each on basic salary.

2. DEDUCTIONS

Salary Advances and Staff Loans

Employees will sometimes want to receive their salary or part of their salary of in advance. At the end of the month an employee’s net pay must be reduced by the salary receive before the month end.

Loans are advances to staff to be received in more than one month. Usually there will be an agreement as to athere at of loan repayment.

Repayment Installments will be reduced from an employee Net pay.

Voluntary Deductions

Employee can choose to contribute towards any organization. Individual. In this case written employee concern and the stated amount will be deducted from the employee’s salary and resettled by the employer to the stated person e.g. Lion Club, Rotary Club, Simba Club etc.

PAYROLL RECORDS

Employer’s are required to maintain records with information of each employee salary and hours worked the rate of pay, Total overtime, entitlement and additions to salary, reductions from salary and employee’s net salary pay.

Employee’s earning statement (Salary slip)

This record contain information on the employee earning and reductions, clearly analyzed and showing how net pay has been arrived at the end of each month this statement is sent to every employee to communicate her earning information of the month. This statement is known as Salary Advice or Salary Slip.

                           SALARY ADVICE OR SALARY SLIP

Example I

Silunka Company has four persons (all married) and pays the weekly salaries. The detail of the firm is as follow,

Addition Information

(i)   Each employee pays 5% for income tax per week.

(ii) All employees contribute 10% monthly for PSPF.

Required;-

(a)   Prepare the payroll journal for the month of June, 2006 using the headings which will accomplish the purpose.

(b)   Using a general journal as a Memorandum record only, prepare a journal entry to record the payroll.

Payroll Journal (Summary for the Month of June 2006

                                     JOURNAL ENTRIES

Payroll Summaries/Journal

Some organization will have several departments or operating units. Usually payroll is prepared along departmental lines. From the information on the salary slip, it should be possible to prepare a payroll summary for the department.

                                            KIBASILA HIGH SCHOOL

                                                ECA DEPARTMENT

                       PAYROLL SUMMARY /JOURNAL MONTH ENDING………….

From the Departmental Payroll summaries it should be possible to prepare an organization summary.

This would be a list of departments together with department totals of contents of salary slips.

KIBASILA HIGH SCHOOL

ALL DEPARTMENTS

PAYROLL SUMMARY MONTH   ENDING