6.2 Accounting for Payroll
Achievement Indicators:

Define payroll.

State the importance of wages and salaries.

Describe the internal control procedures for wages and salaries.

State the duties of payroll officers, wages clerk and timekeeper.

List the documents for payroll.

Differentiate between time book, time card and biometric attendance machine.

Explain what is time sheet, payroll register and pay advice slip.

Prepare payroll records and discuss different methods of payment of wages and salaries.

Explain the positive and negative impacts of computer based payroll.
Payroll

Payroll accounting deals with record keeping and payment of wages and salaries to the
employees of any business organization.

It is the business’s financial list of the salaries, wages, bonuses, net pay and deductions of their
employees.
Importance of Payroll

Since wages and salaries are the major component of a business’s expenses, adequate control is
required. It is regarded as an expense because it is paid by the business to the employees in
generating revenue for the business.

It also acts as an important tool for retaining the employees or workers. It acts as an incentive to
the employees to be productive and faithful to the company.
Wages
Is based on hourly basis and calculated for a week normally.
Salaries
Is where the annual amount is fixed for an employee but is paid fortnightly or monthly.
Internal control procedures for wages and salaries

Adequate supervision of the time clock or time book.

All payroll registers should be serially numbered to prevent loss or addition of extra entries.

Adequate separation or segregation of duties to prevent the establishment of the dishonest
employees or increasing hourly rates or hours worked.

Employees should sign receipt to prove that they have received their correct pay.

Wages should be prepared under the control of a responsible officer, who should not be a
cashier.

Overtime should be recorded separately and authorized by the supervisor or foreman.

Have a separate bank account for payroll transactions as it will help to identify the direct
deposits made, cash remaining after disbursements and the reconciliations for massive
transactions.

Reconciliation should be done monthly.

Access to the payroll system to be handled by authorized personnel which should be protected
by password.
1
Duties of Wages Clerk, Time-Keeper and Payroll Officer
Wages clerk is the person overseeing the preparation of wages and payroll.
Time keeper is the person responsible for recording the time of arrival and departure of employees.
Payroll officer is a person responsible for preparing the payroll register; that is calculating and
distributing payroll to employees.
Documents for payroll
 Payroll register is used to make entries in the general journal.
 Cheque butt.
 Bank statement.
 Payslips.
Time book is where employees write the time of arrival to work and departure from the
work, in a book.
Time card is a card which electronically records the time of
arrival to work and departure from the work when an employee
puts his or her time sheet in the machine.
Biometric attendance machine is used to capture ones unique
biological/physical feature such as finger print as a record for
identity proof and records the employees’ attendance. It is most
accurate form of recording time.
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Note: time book is subject to manipulation because it is done manually, better
choice is time card or biometric attendance machine but it is costly.
Time sheet shows details of the number of hours spent on each job by an employee.
Payroll register records the details of each employee’s pay for a period e.g. number of
hours worked, overtime pay, gross pay, various deductions, and net pay.
Pay advice slip gives information to an employee about his or her pay e.g. number of
hours worked, overtime pay, gross pay, various deductions and net pay.
Different methods of paying wages and salaries
 Paying by cash.
 By cheque.
 By electronic transfer.
Recording the Payroll
In any business organization recording the payroll involves maintaining payroll department
records, recognizing payroll expenses, liabilities and recording the payment of the payroll.
Maintaining Payroll Department Records
Business organizations usually keep a separate record file of each employee in the organization.
These records are updated after each pay period. The payroll register assists the business
organizations in updating each employee’s record after each pay period.
2
Compulsory Deduction
 F.N.P.F (10% from employer and 8% from employee).
 P.A.Y.E if the gross income is over $16,000.
Voluntary deduction
 Insurance premium, union fees, credit card payment, hire purchase payment, housing
allowance, and any other deductions approved by employees.
Note:
Gross pay = (Normal Rate x Normal Hours) + (Time and Half Rate x Time and Half Hours) +
(Double Time Rate x Double Time Hours)
Time and Half Rate = Normal Rate x 1.5
Double Time = Normal Rate x 2
Sample of Payroll Register
MALA’S CONSTRUCTIONS ENTERPRISE
PAYROLL REGISTER
Date of Payment : 16/06/2015
2015
Gross Earnings
Pay
Employee
period
(Weekly)
Ending
No.
Total
Regular
Hours Rate
$
Pay
$
Deductions
Over-time
Rate
Pay
$
$
Gross
Pay
$
PAYE
$
FNPF Union
$
Payment
Insurance
Fees
Total
Premium Deducti
$
$
ons $
Net Pay
$
E205
40
5.00
200.00
-
0.00
200.00
-
16.00
-
20.00
36.00
164.00
E302
44
5.00
200.00
7.50
30.00
230.00
-
18.40
10.00
30.00
58.40
171.60
12 –June- E108
2015
41
5.00
200.00
7.50
7.50
207.50
-
16.60
10.00
-
26.60
180.90
E389
40
8.00
320.00
-
0.00
320.00
0.86
25.60
10.00
-
36.46
283.54
E250
38
8.00
304.00
-
0.00
304.00
-
24.32
10.00
25.00
59.32
244.68
37.50
1261.50
0.86 100.92
40.00
75.00 216.78
1044.72
TOTAL
1224.00
Note: the normal working hours of the employees in Mala’s Construction Enterprise is 40 hours.
Advantages





Positive and Negative Impacts of Computer based Payroll
Disadvantages

Saves time and cost.
Less clerical work (less labour).
Accuracy and efficient.
Less storage space required (less paper
work).
Back up data in case of fire or theft.



3
Cost of the software package in relation to
wages and payroll.
Special skills of the labour to operate the
package.
High chances of data lost by system failures
(power failure, hard drive crash).
Initial setup cost is quite high.