Accounting for employment

THE SYSTEM OF ACCOUNTING
Volume III
ACCOUNTING FOR EMPLOYMENT
WRITTEN BY:
SYED AQEEL RAZA
MASTER 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 intoone’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 withemployees relating totheir
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 relatedpayments toemployees whichwere earnedduring
the period;
<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<aqeelraza@live.com>
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 joinedservices.
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<aqeelraza@live.com>
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.
Segment 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
Segment II
SALALARIES & ALLOWANCES
BASIC
HOUSE
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
Segment III
GROSS WORKING WORKING Other Arrears Expense TOTAL
SALARY DAYS SALARY Allows. if any Claim GROSS
30
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 7,600
147,998 143,998 3,700 500 4,000 152,198
Segment IV
D 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
Segment V
NET
NET
SALARY
SALARY 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
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, 2016
Salaries – Admin 40,898
Salaries – Accounts 20,400
Salaries – Production 69,000
Salaries – Sales/Dist. 6,000
Salaries – Sales/Pro 15,900
TAX 1,200
Transport 600
Advance 4,500
EOBI 2,210
Loan 1,100
Salaries – Admin 150
Salaries Payable 142,438
Misc. expense 2
(To record salaries for March 2016)

PAYMENT OF SALARIES
After accrual of salaries, the payment is made by cheque, by
cash and by demand draft as per the statement filtered;
April 05, 2016
1- 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 13,640
Bank 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 journalentry;
March 30, 2016
ACCRUAL OF OVER TIME
Overtime xxxx
Overtime payable xxxx
Later on the payment may be made by cash or cheque which will contra to Overtime payable
account;
April 5, 2016
PAYMENT OF OVER TIME
Overtime payable xxxx
Cash/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 xxxx
Cash/Bank xxxx

4- PENSION (EOBI)
Pension is another retiring benefit given to workers in privatesector employment
through Employees’ Old Age Benefits Institution (EOBI) and under EOBI Scheme,
Insured persons areentitled to avail benefit like, Old Age Pension (on the event of
retirement), invalidity pension (in case of permanent disability), old age grant (an
insuranceperson attained superannuation age, but does not possess the
minimum threshold for pension), survivor’s pension (in casean insured person is
expired).
A contribution equal to 5% of minimum wages has to be paid by the Employers of
all the Industrialand Commercial Organizations whereEBO 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 werededucted fromtheir salaries
reduce the payment of EOBI Expenseaccount.
Salaries & Allowances (debit) xxxx
EOBI (credit) xxxx
PAYMENT OF EOBI
EOBI Expense A/c (Debit)xxxx
Cash/Bank (Credit xxxx

5- PROVIDENT FUND
A providentfund is a formof socialsafety 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 shareof employees in the profit of an employer. The minimum
qualifying employment period is 90 days or abovewhether 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.) xxxx
Cash/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.) xxxx
Cash/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 RAZA
MASTER OF COMMERCE & POLITICS

Accounting for employment

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