Accounting for employment

THE SYSTEM OF ACCOUNTING

Volume III

ACCOUNTING FOR EMPLOYMENT

WRITTEN BY:SYED AQEEL RAZAMASTER OF COMMERCE & POLITICS

ACCOUNTING FOR EMPLOYEMENT

The use of manpower in business is just like fuel to burn wood or spirit in body, because of the reason, if one thinks for doing business the question of manpower is come into one’s mind. If he opens shop, he will give his power and on expending it, hires someone to share in power.

The nature of manpower may be different business wise but the force of a man in business is not denied at all. There are three types of business named services, trading and manufacturing wherein a business man is an owner and the man who employed by him is providing services to him in other words, the employee who is providing services to business man is concern with the business of services.

The partnership of two business men employee and owner empowers any business to run and make profit.

This partnership is different a little wherein owner gives share in capital to employee and responsible alone in profit and loss of business.

The manpower applied in business is given different names under group employee like sale man, worker, supervisor, officer, manager, director, etc. who were paid salaries daily, fortnightly, monthly besides other benefits as that bonus, gratuity, provident fund, share in profit etc. etc.

The topic accounting for Employment discusses with employees relating to their payments which they earned during the period of providing services of any nature and these payments may be of their salary, wages, over time, bonus, gratuity and other benefits providing under rules of a company or state.

Now, we will discuss on payment and accounting for in books the salaries, allowances and other related payments to employees which were earned during the period;

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>


WAGES, SALARIES AND ALLOWANCES

The wages, salaries and allowances may be defined as;

- Wages are paid work against cash basis Hourly, Daily, Weekly, Fortnightly, Monthly and/or on work basis.

- Salaries are paid monthly basis at the end of the month including all allowances.

- Allowances are the part of salary such as house rent allowance, medical allowance, conveyance allowances and as well as special allowances like dearness allowance, cost of living allowance, additional special allowance and many other allowances announced by company or government from time to time.

If a company wants to have the services of an employee, she hires employees direct or indirect and offers package of emoluments in the agreement of services or employment.

The wages are paid on the spot as soon as work is completed for outsider and the wages of employees engaged in the process of business are paid weekly, fortnightly and monthly according to the rate of wages or fixed amount.

The salaries paid monthly must have statement which I made it and it has following segments and requires;

Name of Concern: ABC & Co.

Name of Statement: STATEMENT OF SALARIES FOR MAR 2016.



Segment I

Personal Information of an employee- Serial Number: The serial number may be changed in adding and deleting persons.- Employee’s Number: not changeable- Name of employee: according to CNIC/C.V.- Designation: As given in appointment letter or nature of work.- Station: The person is deputed or the place of working.- Date of birth: As given in CNIC.- Date of Entry: The date employee joined services.

Segment II

Structure of pay and allowances

- Basic salary: basic salary does not include allowances- House Rent Allowance: This allowance is given to live.- Conveyance Allowance: Conveyance is given in shape of allowance.- Medical Allowance: Medial is also given in shape of allowance.- Ad hoc Relief: It is announced by State.- Cost of living allowance: Employees are also relieved by COLA.

Segment III

Details of salaries including allowances and other earnings

- Gross Salary: gross salary includes allowances.- Working days: working days include all holidays, Sunday but no excess leave.- Working Salary: it based on working days.- Other Allowances: other allowances or extra support do not belong to gross salary.- Arrears if any: any amount which has not been paid previously may include.

- Expense Claim: the claim of employee working out of central point.- Total Gross: it has all sums of earning.- <THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>


egment IV

Details of deductions- Tax: tax is deducted as per law.- Transport: share in transport may be deducted.- Advance: the advance taken from salary is deducted.- EOBI: the deduction of funds for pension at age which is

paid to EBOI.- Loan: the loan is deducted by monthly installments.- Others: any other deductions like loss/damage etc.

Total Deductions: it includes all deductions from gross salary.

Segment V

Salary after deductions- Net salary: net salary becomes by deducting total deductions

into gross salary.- Net salary (rounded): The salaries may have coins which is

better to round by minimum rupee.

Segment VI

Signature of Employee: Requires State fee or revenue stamp at value.<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

ACCOUNTING FOR EMPLOYEMENTSegment I

S.NO.Employee NAME OF

EMPLOYEE DESIGNATIN STATION

Date of DATE OF

# Birth ENTRY

1 1 Employee 1 Manage Admin KARACHI 1970 1.1.2012

2 2 Employee 2 Admin Asst. KARACHI 1965 10.3.2013

3 3 Employee 3 Peon KARACHI 1970 15.4.2013

4 4 Employee 4 Accountant KARACHI 1975 18.3.2014

5 5 Employee 5 Assistant KARACHI 1.1.1985 19.5.2014

6 6 Employee 6 Supervisor KARACHI 1.1.1985 21.6.2015

7 7 Employee 7 Operator KARACHI 1.1.1985 05.6.2015

8 8 Employee 8 Worker KARACHI 1.1.1985 01.01.2016

9 9 Employee 9 Supervisor KARACHI 1.1.1985 5.1.2011






15 15 Employee 15 S.O. KARACHI 1.1.1985 1.3.2015

16 16 Employee 16 S.P.O. LAHORE 1.1.1985 1.1.2016

17 17 Employee 17 S.P.O. MULTAN 1.1.1985 1.1.2016

TOTAL<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

ACCOUNTING FOR EMPLOYEMENTSegment II

SALALARIES & ALLOWANCES

BASICHOUSE RENT CONVEYANCE MEDICAL

ADOC RELIEF COLA

9,999 3,999 2,000 2,000 1,000 1,000

5,000 2,000 1,000 1,000 500 500

5,000 2,000 1,000 1,000 500 500

5,000 2,000 1,000 1,000 500 500

5,000 2,000 1,000 1,000 500 500

5,000 2,000 1,000 1,000 500 500

5,000 2,000 1,000 1,000 500 500

5,000 2,000 1,000 1,000 500 500

5,000 2,000 1,000 1,000 500 500

3,000 1,000 500 500 500 500

3,000 1,000 500 500 500 500

3,000 1,000 500 500 500 500

3,000 1,000 500 500 500 500

3,000 1,000 500 500 500 500

3,000 1,000 500 500 500 500

3,000 1,000 500 500 500 500

3,000 1,000 500 500 500 500

73,999 27,999 14,000 14,000 9,000 9,000


ACCOUNTING FOR EMPLOYEMENTSegment III

GROSS WORKING WORKING OtherArrears Expense TOTAL

SALARY DAYS SALARY Allows. if any Claim GROSS30

19,998 30 19,998 500 - - 20,498

10,000 30 10,000 200 - - 10,200

10,000 30 10,000 200 10,200

10,000 30 10,000 200 10,200

10,000 30 10,000 200 10,200

10,000 30 10,000 200 10,200

10,000 30 10,000 200 10,200

10,000 30 10,000 200 10,200

10,000 30 10,000 200 10,200

6,000 30 6,000 200 6,200

6,000 25 5,000 200 5,200

6,000 26 5,200 200 5,400

6,000 27 5,400 200 5,600

6,000 28 5,600 200 5,800

6,000 29 5,800 200 6,000

6,000 28 5,600 200 500 2,000 8,300

6,000 27 5,400 200 2,000 7,600147,99

8 143,998 3,700 500 4,000 152,198<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>


Segment IVD E D U C T I O N S TOTAL

Tax Transport Advance EOBI L O A N Others DEDUCTIONS

Opening Ded.

Closing

400 200 - 130 5,000 500 4,500 50 1,280

100 100 130 3,000 300 2,700 100 730

100 100 500 130 - 830

100 100 1,000 130 - 1,330

100 100 130 - 330

100 130 2,000 300 1,700 530

100 130 - 230

100 130 - 230

100 130 - 230

130 - 130

130 - 130

130 - 130

1,000 130 - 1,130

130 - 130

130 - 130

2,000 130 - 2,130

130 - 130

1,200 600 4,500 2,210 10,000 1,100 8,900 150 9,760<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>


Segment V

NETNET

SALARYSALARY ROUNDED

19,218 19,220

9,470 9,470

9,370 9,370

8,870 8,870

9,870 9,870

9,670 9,670

9,970 9,970

9,970 9,970

9,970 9,970

6,070 6,070

5,070 5,070

5,270 5,270

4,470 4,470

5,670 5,670

5,870 5,870

6,170 6,170

7,470 7,470

142,438 142,440<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>


Segment VI

SIGNATURE



VIEW OF PAY ROLL



RECONCILIATION OF SALARIES

The salaries which are paying must be reconciled from previous gross salaries by deletion and addition of employees into current salaries like;



SUMMARY OF SALARIES

The columns may be hidden or unhidden and added or deleted according to requirement and the required columns from segments mentioned above may be printed.

The statement of salaries may be made by computer in Excel wherein wide range of columns allow users to filter salaries by location wise, department wise, category wise, payment wise by coding.





ACCRUAL OF SALARIES

The salaries are accrued head wise before payment.

March 30, 2016Salaries – Admin 40,898Salaries – Accounts 20,400Salaries – Production 69,000Salaries – Sales/Dist. 6,000Salaries – Sales/Pro 15,900

TAX 1,200Transport 600Advance 4,500EOBI 2,210Loan 1,100Salaries – Admin 150Salaries Payable 142,438Misc. expense 2(To record salaries for March 2016)



PAYMENT OF SALARIESAfter accrual of salaries, the payment is made by cheque, by cash and by demand draft as per the statement filtered;

April 05, 20161- Salaries Payable 19,220

Bank 19,200

2- Salaries Payable 9,470.Bank 9,470

3- Salaries payable 100,110.-Cash 100,110

4- Salaries payable 13,640Bank 13,640

When salaries are accrued, the credit balance in Salaries payable account is shown and on payment salaries payment wise, it will be zero.



2- OVERTIME

According to the law, the normal working hours per day are 8 hours and these should not be more than 48 hours per week. By including the lunch and pray time in hours of work, working hours should not be greater than 9 hours a day.

After working hours, if an employer wants to take work overtime, he must give overtime according to labour laws by giving rest interval of an hour after every six hours of work and on the formula below;



In order to meet the emergency of work, the departmental head who wants to take work from his subordinates after working hours will fill the request form of overtime and send it to administration department or human resources department as prescribed below;



The separate record of overtime as in over time form may be maintained in the department of Administration or human resources and after the closing of month will be submitted to accounts department for payment.



The Accounts Department will prepare the statement of overtime as designed below for payment:



The overtime may be accrued so that the expenses of the month may come in accounts under journal entry;

March 30, 2016ACCRUAL OF OVER TIME

Overtime xxxxOvertime payable xxxx

Later on the payment may be made by cash or cheque which will contra to Overtime payable account;

April 5, 2016PAYMENT OF OVER TIME

Overtime payable xxxxCash/Bank xxxx

3- GRATUITY

Gratuity in private sector employment comes under retirement benefits payable in lump sum to permanent employee on leaving service.

In accordance with the provisions of law, the rate of gratuity is “thirty (30) days gross salary/wages last drawn for every completed year of service of any period in excess of six months”.

The gratuity is charged in expense account being the part of earning of an employee.

PAYMENT OF GRATUITY

Gratuity xxxxCash/Bank xxxx



4- PENSION (EOBI)

Pension is another retiring benefit given to workers in private sector employment through Employees’ Old Age Benefits Institution (EOBI) and under EOBI Scheme, Insured persons are entitled to avail benefit like, Old Age Pension (on the event of retirement), invalidity pension (in case of permanent disability), old age grant (an insurance person attained superannuation age, but does not possess the minimum threshold for pension), survivor’s pension (in case an insured person is expired).

A contribution equal to 5% of minimum wages has to be paid by the Employers of all the Industrial and Commercial Organizations where EBO act is applicable and contribution equal to 1% of minimum wages by the employees of the Organizations.

The rate of pension is minimum Rs.5, 250 and maximum as per formula;

(Avg. monthly wages x No. of yrs of Insurable Employment) 50

The contributions from employees which were deducted from their salaries reduce the payment of EOBI Expense account.

Salaries & Allowances (debit) xxxxEOBI (credit) xxxx

PAYMENT OF EOBI

EOBI Expense A/c (Debit)xxxxCash/Bank (Credit xxxx



5- PROVIDENT FUND

A provident fund is a form of social safety wherein employees/workers contribute a portion of their salaries and employers contribute on behalf of their employees/workers and it provides financial support on retirement age.

The matter of accounting on provident fund depends on the system adopted for according to law and is a separate discussion.

6- BONUS

Bonus is the share of employees in the profit of an employer. The minimum qualifying employment period is 90 days or above whether permanent or temporary employee.

Many companies give bonus or bonuses on religious events but according to the law, bonus is paid on the profit and its distribution would be;

- 15% of the profit, if the profit is less than total/aggregate of one month wages all workmen.

- 30% of the profit, if the profit is equal to the total/aggregate of one month wages of workmen.

- 30% of the profit, if the profit is greater than the total/aggregate of one month wages of all workmen.

The bonus is charged in expense account.

Bonus account (Dr.) xxxxCash/Bank xxxx



7- LEAVE ENCASHMENT

A fourteen days paid annual leave on full wages/salary is allowed under Factories Act and Shop & Establishments Ordinance to permanent workers/employee.

The leave encashment being part of salary is charged in expense account.

Leave Encashment A/c (Dr.) xxxxCash/Bank(Cr.) xxxx

8- WORKERS’ PARTICIPATION FUND

According to Companies Profits (Workers’ Participation) Act, 1968, every company is required to pay five percent of its profits to Workers’ participation fund every year as per audited financial statements before charging such WPPF (Workers' Profit Participation Fund) under Workers’ Participation Fund.

Besides above, the employment has many other paying benefits in like workers welfare funds, maternity leave, social security, health and safety, etc. etc. which are accounted for according to companies paying what benefit.



The employment relates to services and services to services business applied in all businesses or alone and without it the concept of business is just like a dream.

The employment may be controlled by Human Resource Department who appoints or disappoints employees, all matters relating to salaries i.e. increment, attendance, transfer, valuation of employees/workers etc., keeps records of employees, prepares statements relating to salaries and benefits and sends them to accounts department for payment.

Where there is no Human resources department, the accounts department has to prepare statements relating to salaries and benefits of employees.

WRITER’S VIEW

WRITTEN BY:

SYED AQEEL RAZAMASTER OF COMMERCE & POLITICS

Education

Accounting for employment