THE ACCOUNTS OFFICE- PAYROLL

The accounts office in any organization is very important as it records all purchases and sales, and the
receipt and payment of money. Accounts are therefore kept to ascertain whether a profit (or loss) has been
made, record the value of assets and liabilities, provide information to others about the finances of the
business and maintain accurate records of all transactions. Salaries/Wages are the rewards paid to employees
for the labour/services they have supplied to an organization. There are other terms used for the rewards of
services rendered depending on the nature of the work and the period for which payment is made.

 Salaries – Paid monthly to workers.

 Wages – This is paid weekly to production or factory workers.

 Piece work – Workers are paid for each piece of work completed. For example, an assistant
dressmaker may be paid $100 for every piece of garment upon completion regardless of how long it
takes.

 Flat rate – All employees are equally rewarded for work done; whether or not they perform well.
This type of reward does not encourage workers to perform at their best. E.g. a factory worker may
be paid $1500 each day to work whether he produce 10 bags or 20 bag.

 Hourly rate – Workers are paid for each hour they work. They are sometimes provided with a time
card and are expected to clock in and out. When workers arrive for work, they select their clock card
from the rack and insert it in the clock which prints their card with the arrival time.

 Commission- Sales representatives are paid a basic salary plus an additional amount for performance
according to the quantity they sell. Usually this is a percentage value of the goods sold. e.g. a worker
may be paid $20,000 per month plus 5% of his sales.

 Bonus rate- A system where additional money is paid for extra output of work completed in less
time than is specified.

 Overtime – Payment for work performed outside of the specified working hours. This is calculated at
an agreed rate which may be: Double time which is twice the normal hourly rate
Time and a half which is the normal hourly rate plus half the normal rate
Question

Tom is paid $6 an hour for a 40-hour workweek. During the week he worked 15 hours extra at time and a
half and over the weekend he worked 10 hours at double time. Calculate his total earnings.

WAGE AND SALARY DEDUCTIONS

In addition to the rate at which the employees are paid, it is important to note that the amount earned and the
actual amount received is different because certain deductions have to be made. These can be statutory or
voluntary. A statutory deduction is a compulsory deduction in an individual’s pay without any consent from
the individual. Voluntary deductions are deductions requested by the employee from salary (wages). In
Jamaica, Income Tax, Education Tax, National Insurance Scheme and Housing Trust are statutory
deductions.

National Insurance Scheme

This is a statutory deduction which is deducted directly from your salary. The scheme offers financial
protection to workers against loss of income arising from injury on the job, retirement and death of the
insured. The more you earn the more you pay.

Income Tax

The amount of income tax paid depends on the amount earned. The employer is required by law to deduct
this from the income and pay it over to the government. The pay as you earn (PAYE) method is used to
collect income tax.

Voluntary Deductions

These are taken from an employee’s salary at his instruction. They include payments to credit unions,
mortgage, life insurance payments.

Gross pay

This is the actual amount that the employee receives before statutory deductions are made. This includes
total in overtime, commission, basic salary and hourly rates.
Net pay

This is the amount the worker receives after deductions have been made.

Question 1

Bent’s Construction employees four persons a week, who are required to work a 40 hour work week and
may be asked to work overtime. All employees must contribute 5% of their gross wage to NIS and must pay
income tax of 25% of their gross wages. As the payroll clerk you are required to prepare a payroll sheet. The
following information was also provided.

Employees Basic Rate Overtime Overtime

Rate Hours Worked
$ $
J. Williams 8 12 8
C. Brown 8 8 15
A. Reid 6 9 10
B. Bent 8 12 12

Question 2

As the accounts clerk for Fat Free Ltd prepare a payroll sheet for four workers and a pay slip for W. Jones
considering the following:

- All employees are required to work for 40 hours per week but may work overtime at time and a half.

- All employees must pay income tax at 15% of gross wages and NIS at 20%.

- P. Price, B. Hall pays a Union fee of $20 per week

- S. Reid and B. Hall pays Education tax at 5% per week

Employees Hours Worked Basic Rate

P. Price 46 15
S. Reid 48 15
B. Hall 45 15
W. Jones 40 20
QUESTION: # 1

BENT’S CONSTRUCTION

EMPLOYEES BASIC OVERTIME GROSS N.I.S INCOME TOTAL NET

WAGE $ PAY (5%) TAX DEDUCTIONS WAGE/PAY
$ $ (25%) $ $

J. Williams

C. Brown

A. Reid

B. Bent

QUESTION: # 2

FAT FREE LTD

EMPLOYEES BASIC OVERTIME GROSS

WAGE $ PAY
$ $

P. Price

S. Reid

B. Hall

W. Jones