• make other deductions from wages - trade union subscriptions, payroll saving pension contributions and payroll giving
• Identify various methods for making payments to employees
• Account for payroll costs and payroll deductions
The payroll is a list of the employees of the business 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.
Sometimes, employees earn a fixed amount every week or every month. Sometimes there are variations in the amount employees earn, due to overtime payments or bonuses or commissions which add to their pay.
The total amount earned in a week or month by an employee is referred to as gross pay
This is not the amount of money that the employee receives, because deductions are made from the gross pay, and the employee receives only the gross pay less deductions. This is known as the employees net pay.
The deductions from pay are usually a combination of:
Statutory deductions are deductions from pay that are required to be made by law, for example: income tax and social security. These deductions from gross pay are made by the employer and paid to the relevant taxation authority. In this situation an employer acts as the agent of the taxation authority, both calculating and collecting taxation and social security amounts due from the employee.
For example; in the UK income tax for employees is deducted under the Pay As You Earn scheme along with National Insurance and paid over to HM Revenue and Customs by employers.
Non-statutory deductions are voluntary deductions from pay that the employee chooses to make.
| Gross pay | $ | A |
| Less: | ||
| Statutory deductions | B | |
| Non-statutory deductions | (C) | |
| Net pay or take-home pay | A-B-C |
What this means is that when an employee is paid, only the net pay or take-home pay is received, and the employer pays the other amounts deducted to other businesses (external agencies) such as the tax authority, trade union or pension management company as appropriate
The employee may authorise the employer to make other non-statutory deductions from their earnings. Examples are:
(a) pension contributions
(b) deductions under a payroll charitable donation scheme
(c) deductions under a payroll savings scheme
(d) trade union subscriptions
(e) deductions under holiday pay schemes
(f) certain other voluntary deductions agreed by the employer (for example, fees for use of the company sports club)
The following figures have been extracted from a traders records in respect of wages and salaries for the month of July:
(i) Wages and salaries (gross)
$6,300
(ii) Income tax
$1,600
(iii) Employees pension contributions
$600
(iv) Employers pension contributions
$700
$4,100
$4,800
$6,300
$7,000
$4,100
$4,200
$4,800
$5,600