1. 1 PAYROLLPAYROLL

2. 2 Firstly who is the employee? Who is the employer?

3. 3 Preparing the payroll involves the following: Calculating the amount earned (wages/salaries) by employees Calculating deductions to be made from the pay of employees Calculating employer oncosts such as employer national insurance contributions, and in some cases pension contributions

4. 4 THE PAYROLL The payroll is a list of all employees giving details of the amount they earn, the amounts they are paid, deductions made from their pay, and contributions made by the employer. NOW TURN TO PAGE 308 FOR AN EXAMPLE OF A PAYROLL ANALYSIS SHEET

5. 5 Gross pay is the amount to which the employee is entitled BEFORE any statutory or voluntary deductions are made Gross pay can be earned in a variety of different ways. Please give as many examples as you can think of…….

6. 6 NET PAY Net pay is gross pay less ALL deductions (statutory and voluntary) Net pay is often referred to as ‘take home pay’

7. 7 There are two types of deductions that are made from our wages and salaries: STATUTORY AND VOLUNTARY

8. 8 STATUTORY payments are deductions that employers are required to make BY LAW (statute) from the gross pay of employees. These are…. Income Tax (Also known as PAYE – Pay As You Earn) AND National Insurance Contributions (NICs)

9. 9 INCOME TAX Wages and Salaries of all employees are liable to Income Tax (PAYE). This doesn’t mean that everyone will pay income tax because that would depend upon how much you earn and what personal tax allowance you have. Income Tax deducted from pay must be paid over by the employer, on behalf of the employee, to HMRC

10. 10 NATIONAL INSURANCE CONTRIBUTIONS (NICs) These are also deducted by the employer from the pay of the employee in a similar way to Income Tax deductions. All contributions deducted are again sent to HMRC which collects them on behalf of the government Department for Work and Pensions (DWP)

11. 11 VOLUNTARY DEDUCTIONS Voluntary deductions are deductions made from employee’s pay, at the employee’s request. They include payments to: Pension Funds or Superannuation Schemes Charitable organisations Saving Schemes Trade Unions Voluntary deductions taken from the pay of the employee will be paid over on their behalf by the employer to the relevant collecting body

12. 12 EMPLOYER ONCOSTS These are costs incurred by the EMPLOYER Employers must pay national insurance contributions on your wages as well as the amount the employee pays Employers may also choose to pay into a pension scheme for their employees. Some employers may pay all of the pension fund contributions on behalf of the employee and some employers operate a scheme where the employee pays into the pension each month as well as the employer

13. 13 Summary of the cost of Employment A true cost of employment to the employer consists of gross pay earned by employees plus any employer oncosts Now turn to page 310 and 311 of the text book

14. 14 PAYROLL POSTINGS! Once you have worked out what amount is going to be paid you will need to post the entries into the double entry accounts. The IAB have two methods of accounting for employment costs. The method you will be examined on will use the following accounts: Wages and Salaries Control Account PAYE/NIC Creditor Account Pension Fund Creditor Account Staff Wages and Contributions Account

15. 15 When wages are paid out of the bank we credit the bank account. The expense of the wages is a debit to the Wages and Salaries Control Account The PAYE/NIC and Pension is a debit (expense) to the Wages and Salaries Control Account and then you credit the liability to PAYE/NIC Creditor Account and Pension Fund Creditor Account because YOU WILL OWE THIS MONEY TO HM REVENUE & CUSTOMS AND THE PENSION PROVIDER

16. 16 When you pay HM Revenue & Customs and your Pension Provider, you will clear the balance in the PAYE/NIC Creditor Account and Pension Fund Creditor Account by posting a debit and then you will credit the Bank Account with the cheque you have sent