Capitol Tech U Doctoral Presentation - April 2024.pptx
payroll accting.pptx
1. Chapter Three
Ethiopian Payroll Accounting
• The term Payroll often refers to the document
prepared to pay remuneration (compensation) for the
service rendered in a given period of time.
• Payroll is often used to refer to the total amount paid
to employees for certain period.
• Accounting for Payroll (Preparation of payroll) is
particularly important because:
Employees are highly sensitive to payroll errors and
irregularities.
Payroll expenditures are subject to various
government regulations.
Payroll often represents the largest expense that a
Company incurs.
2. Definition of Payroll Related Terms
• Salary and wages are usually used
interchangeably.
• However, the term wages is more correctly used
to refer to payments for manual labor that are
paid based on the number of hours worked or the
number of units produced.
• On the other hand, Compensation to employees
on monthly or annual basis are termed as salaries.
• A pay period refers to the length of time covered
by each payroll payment.
3. Definition of Terms Con’ted
• The payday is the day on which wages or
salaries are paid to employees. This is usually on
the last day of the pay period.
• Employee Earnings Record: It is a separate
record kept for each employee.
• Pay Check: An instrument for paying salary if
the firm makes payment via writing a check.
• A payroll Register (sheet): is the entire list of
employees of a business along with each
employee’s gross earnings, deductions and net
pay for a particular payroll (pay) period.
4. Definition of Terms Con’ted
• Gross earnings: all earnings of the employees it
is the sum of Basic salary, Overtime earning
and Allowance.
5. Standard overtime rate in Ethiopia:
• A worker shall be entitled to be paid at a rate of:
One and one-quarter (1 ¼) times his ordinary (regular) hourly
rate for overtime work performed before 10:00 P.M in the
evening.
One and one half (1 ½) or (1.5) times his ordinary (regular)
hourly rate for overtime work performed between 10:00 P.M and
six (6:00 A.M) in the morning.
Two (2) times the ordinary (regular) hourly rate for overtime
work performed on weekly rest days.
Two and one half (2 ½) or 2.5 times the ordinary (regular) hourly
rate for overtime work performed on a public holiday.
Hence Overtime Earning = Standard rate * Overtime hour
worked * basic salary per hour
6. Employee Income Tax
• Deductions: are subtractions made from the
earnings of employees required either by the
government or permitted by the employee
himself.
No. Salary Range (ETB) Tax Rate Deduction (ETB)
1. 0 – 600 Birr Non-Taxable –
2. 601-1,650 Birr 10% 60 Birr
3. 1,651 – 3,200 Birr 15% 142.50 Birr
4. 3,201 – 5,250 Birr 20% 302.50 Birr
5. 5,251 – 7,800 Birr 25% 565 Birr
6. 7,801 – 10,900 Birr 30% 955 Birr
7. Over 10,900 Birr 35% 1,500 Birr
7. • Pension contribution
• Employee Pension – 7%
• Company Pension – 11%
• Other deductions exg. contribution to credit association
• Net pay(home take pay): net amount received by each
employees after deductions.
8. Major Procedures (Activities)
Involved in Accounting for Payroll
• Gathering the necessary data: All the relevant
information about every employee should be
gathered. This requires reviewing various
documents such as attendance sheets and doing
some arithmetical work.
• Preparing payroll register(sheet)
• Recording payroll related transactions
a. payment of salary
b. payroll tax expense
c. payment of withholding tax and payroll tax to the ERCA
d. payment to other e.g credit associations.
10. Additional Information
- The management of the agency usually expects a
worker to work 40 hours in a week and during
Yekatit there are four weeks.
- There were no absentees during the month
- All employees are permanent except Tenssay and
Haile
- Paulos agreed to contribute monthly Br. 300 from
his salary as a monthly saving in the credit
association of the agency.
- Allowance is not taxable
