Unit VI – Part 1Accounting for SalariesOverview

Background

Every business that has employees is required to keep some kind of record of wages and salaries paid. A business must have correct information about thereported earnings of its employees in order to make proper payment to themand in order to debit the amounts they have earned to the correct accounts.All businesses are required by law to keep earnings records for each employeeand must be able to prove the correctness of the various required governmentdeductions and contributions (e.g., taxes, SSS, Philhealth, etc.), whichemployers and employees pay. Employees want to be sure that the amountsthey receive on payday are the amounts to which they are rightfully entitled.The summary of the employees’ salary is prepared in a report called

payroll register

. This is accomplished depending on the payroll period being followed by the company either in a weekly, semi-monthly or monthly basis.

Purpose

The purpose of “Accounting for Salaries” is to provide students a simpleworking knowledge on how to record salaries paid to employees withdeductions required by the government and the corresponding remittances of those deductions made to proper government agencies.

In this unit

This unit contains the following topics:

TopicsSee Page

Recording Salary Expenses2 of E

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Recording Salary Expenses

Overview

All business entities normally hire employees to perform its various operations.Salaries of these employees must be properly computed and paid at a specifiedtime (e.g. weekly, bi-monthly, monthly).In this section, readers will be introduced on how to journalize transactionsaffecting payment of employees’ salaries with corresponding deductions asrequired by law or due to some other reasons such as loans made byemployees from the company.

Social SecuritySystem

Under PD No. 24, “no person shall be employed unless he has a social securitynumber.” It is therefore a requirement that all employees in the private sector be members of the Social Security System (SSS). The system provides benefits and services to its members which include the following: salary loans,educational loans, housing loans, sickness and death benefits, unemployment benefits, disability benefits, pension benefits and reimbursement of funeralexpenses for deceased members. In consideration for all these benefits, theemployee is required to make a monthly contribution in accordance with acontribution table provided by the SSS. This contribution of the employee isdeducted from his salary. The corresponding contribution of the employer is an

operating expense

, i.e.,

SSS Contribution Expense

Philhealth

The Philippine Medical Care Commission (PMCC) was established to providehospitalization and other medical benefits to its members and their dependents.Contributions are made according to a given table. Similar to SSS, thecontribution is shared between the employee and his employer. Thecontribution of the employee is deducted from his salary. The contribution of the employer is an

operating expense

, i.e.,

Philhealth Contribution Expense

Pag-ibig Fund

The Pag-ibig Fund is a provident savings and housing fund for employeesestablished under P.D. No. 1752. It aims to generate mass savings gearedtowards financing homes for its members. All private employees who aremembers of the SSS and their employers are covered by the fund compulsorily.The employer and its employees in accordance with the pag-ibig contributiontable make contributions to the Pag-ibig Fund.

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Recording Salary Expenses,

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WitholdingIncome Tax

Under the Bureau of Internal Revenue regulations, every employer is requiredto deduct and withhold income tax from the salary of its employees inaccordance with a withholding tax table. The amount of income tax to bewithheld from the employees will depend on whether the employee is single,married, a head of the family, a married woman whose husband is alsoworking, and on the number of his qualified dependents.

IllustrationNo. 1

The following is an illustration of how to record salary expense with variousdeductions:September 30, 20X1 transaction:J. Labrador, CPA paid salaries to employees, P32,500. Deductions were madefor the following: SSS, P966.75; Philhealth, P343.75; Pag-ibig, P650 andwithholding taxes, P2,850.Sept. 30 Salaries And Wages Expense32,500SSS Premiums Payable 966.75Philhealth Contributions Payable 343.75Pag-Ibig Contribution Payable 650.00Withholding Taxes Payable 2,850.00Cash27,689.50To record payment of salaries for theperiod Sept. 1-30

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