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THE SYSTEM OF

ACCOUNTING

Volume III

ACCOUNTING FOR
EMPLOYMENT

WRITTEN BY:

SYED AQEEL RAZA

MASTER OF COMMERCE & POLITICS

ACCOUNTING FOR EMPLOYMENT


The use of manpower in business is just like fuel to burn
wood or spirit in the body, because of the reason, if one
thinks about doing business the question of manpower
comes into ones mind. If he opens shop, he will give his
power and on expanding 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 him and is providing services
to him in other words, the employee who is providing
services to a businessman is concerned with the business
of services.
The partnership of two businessmen employee and owner
empowers any business to run and make a profit.
This partnership is different a little wherein owner gives a
share in capital to the 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 with
employees relating to their payments which they earned

during the period of providing services of any nature and


these payments may be of their salary, wages, overtime,
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 related payments
to employees which were earned during the period;
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL
RAZA<aqeelraza@live.com>

ACCOUNTING FOR EMPLOYMENT

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 a work basis.
- Salaries are paid monthly basis at the end of the
month including all allowances.
- Allowances are the part of salaries 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 a
package of emoluments in the agreement of services or
employment.
The wages are paid on the spot as soon as work is
completed for the 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.

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL


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ACCOUNTING FOR EMPLOYMENT

Segment I
Personal Information of an employee
- Serial Number:
The serial number

may be changed in adding

and deleting persons.

- Employees 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 joined services.
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 the
shape of allowance.

- Medical Allowance: Medial is also given in the 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
previously may include.

which

has

not

been

paid

- Expense Claim: the claim of an employee working out


of central point.
- Total Gross: it has all sums of earning.

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL


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ACCOUNTING FOR EMPLOYMENT

Segment 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 a
pension at the 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 are better to round by minimum
rupee.

Segment VI
Signature of Employee: Requires State
fee or revenue stamp at value.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL
RAZA<aqeelraza@live.com>

ACCOUNTING FOR EMPLOYMENT

Segment I

S.N
O.

Employ
ee

NAME OF
EMPLOYEE

DESIGNAT
ION

STATI
ON
KARAC
HI
KARAC
HI

Employee 1

Manage
Admin

Employee 2

Admin Asst.

Date
of
Birth

ENTRY

1970

1.1.2012

1965

10.3.201
3

DATE
OF

Employee 3

Peon

Employee 4

Accountant

Employee 5

Assistant

Employee 6

Supervisor

Employee 7

Operator

Employee 8

Worker

Employee 9

Supervisor

10

10

Employee 10

Worker

11

11

Employee 11

Worker

12

12

Employee 12

Worker

13

13

Employee 13

Worker

14

14

Employee 14

Worker

15

15

Employee 15

S.O.

16

16

Employee 16

S.P.O.

17

17

Employee 17

S.P.O.

KARAC
HI
KARAC
HI
KARAC
HI
KARAC
HI
KARAC
HI
KARAC
HI
KARAC
HI
KARAC
HI
KARAC
HI
KARAC
HI
KARAC
HI
KARAC
HI
KARAC
HI
LAHOR
E
MULTA
N

1970
1975
1.1.19
85
1.1.19
85
1.1.19
85
1.1.19
85
1.1.19
85
1.1.19
85
1.1.19
85
1.1.19
85
1.1.19
85
1.1.19
85
1.1.19
85
1.1.19
85
1.1.19
85

TOTAL
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL
RAZA<aqeelraza@live.com>

ACCOUNTING FOR EMPLOYMENT

Segment II

SALALARIES & ALLOWANCES

BASI
C

HOUSE
RENT

CONVEYA
NCE

MEDIC
AL

ADOC
RELIEF

COL
A

9,99

3,999

2,000

2,000

1,000

1,00

15.4.201
3
18.3.201
4
19.5.201
4
21.6.201
5
05.6.201
5
01.01.20
16
5.1.2011
3.1.2010
10.3.201
2
5.3.2014
5.3.2014
1.3.2015
1.3.2015
1.1.2016
1.1.2016

9
5,00
0
5,00
0
5,00
0
5,00
0
5,00
0
5,00
0
5,00
0
5,00
0
3,00
0
3,00
0
3,00
0
3,00
0
3,00
0
3,00
0
3,00
0
3,00
0
73,9
99

0
2,000

1,000

1,000

500

500

2,000

1,000

1,000

500

500

2,000

1,000

1,000

500

500

2,000

1,000

1,000

500

500

2,000

1,000

1,000

500

500

2,000

1,000

1,000

500

500

2,000

1,000

1,000

500

500

2,000

1,000

1,000

500

500

1,000

500

500

500

500

1,000

500

500

500

500

1,000

500

500

500

500

1,000

500

500

500

500

1,000

500

500

500

500

1,000

500

500

500

500

1,000

500

500

500

500

1,000

500

500

500

27,999

14,000

14,000

9,000

500
9,00
0

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL


RAZA<aqeelraza@live.com>

Segment III

ACCOUNTING FOR EMPLOYMENT

GROS
S
SALA
RY
19,99
8
10,00
0
10,00
0
10,00
0
10,00
0
10,00
0
10,00
0
10,00
0
10,00
0

WORKI
NG

DAYS

30
30
30
30
30
30
30
30
30

WORKI
NG
SALAR
Y
30
19,998
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000

Other
Allo
ws.

Arrea
rs
if
any

500

200

Expen
se

Clai
m

TOTAL
GROS
S

200

20,49
8
10,20
0
10,20
0
10,20
0
10,20
0
10,20
0
10,20
0
10,20
0
10,20
0

200
200
200
200
200
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

28

6,000
147,9
98

27

5,600
5,400

143,998

200

6,000
500

200
3,700

500

2,00
0
2,00
0
4,00
0

8,300
7,600
152,1
98

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL


RAZA<aqeelraza@live.com>

ACCOUNTING FOR EMPLOYMENT


Segment IV

DEDUCTIONS
Advan EOB
ce
I
LOAN
Openi Ded Closi
ng
.
ng

TOTAL

Tax

Transp
ort

400

200

100

100

100

100

500

130

830

100

100

1,000

130

1,330

100

100

130

330

1,700

530

Othe
rs

DEDUCTI
ONS

130

5,000

500

4,500

50

1,280

130

3,000

300

2,700

100

730

100

130

100

130

230

100

130

230

100

130

230

130

130

130

130

130

130

130

1,130

130

130

130

130

130

2,130

130

130

1,000

2,000

1,20
0

600

4,500

2,21
0

2,000

10,00
0

300

1,10
0

8,900

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL


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150

9,760

ACCOUNTING FOR EMPLOYMENT


Segment V

NET
SALAR
Y

NET
SALARY
ROUND
ED

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
142,43
8
142,440
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL
RAZA<aqeelraza@live.com>

ACCOUNTING FOR EMPLOYMENT

Segment VI

SIGNATURE

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ACCOUNTING FOR EMPLOYMENT

VIEW OF PAYROLL

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ACCOUNTING FOR EMPLOYMENT

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;

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL


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ACCOUNTING FOR EMPLOYMENT

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.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL
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ACCOUNTING FOR EMPLOYMENT

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL


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ACCOUNTING FOR EMPLOYMENT

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)
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL
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ACCOUNTING FOR EMPLOYMENT

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
1Salaries Payable
Bank

19,220
19,200

2-

Salaries Payable
Bank

9,470.
9,470

3-

Salaries payable
Cash

100,110.100,110

4-

Salaries payable
Bank

13,640
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.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL
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ACCOUNTING FOR EMPLOYMENT

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
labor laws by giving rest interval of an hour after
every six hours of work and on the formula below;

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ACCOUNTING FOR EMPLOYMENT

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;

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ACCOUNTING FOR EMPLOYMENT

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 the month will be submitted to accounts department for payment.

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ACCOUNTING FOR EMPLOYMENT

The Accounts Department will prepare the statement of


overtime as designed below for payment:

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ACCOUNTING FOR EMPLOYEMENT

The overtime may be accrued so that the expenses of the month


may come in accounts under journal entry;
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 OVERTIME
Overtime payable
Cash/Bank

3-

xxxx
xxxx

GRATUITY

Gratuity in private sector employment comes under retirement benefits


payable in a lump sum to the 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 for
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
Cash/Bank

xxxx
xxxx

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ACCOUNTING FOR EMPLOYMENT

4-

PENSION (EOBI)

Pension is another retiring benefit given to workers in private


sector employment through Employees Old-Age Benefits
Institution (EOBI) and under EOBI Scheme, Insured persons are
entitled to avail benefit like, Old Age Pension (on the event of
retirement), invalidity pension (in case of permanent disability),
old age grant (an insurance person attained superannuation age,
but does not possess the minimum threshold for pension),
survivors pension (in case an insured person is expired).
A contribution equal to 5% of minimum wages has to be paid by
the Employers of all the Industrial and Commercial Organizations
where EBO 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 were deducted from


their salaries reduce the payment of EOBI Expense account.
Salaries & Allowances
EOBI (credit)
PAYMENT OF EOBI

(debit)

xxxx
xxxx

EOBI Expense A/c (Debit) xxxx


Cash/Bank (Credit

xxxx

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ACCOUNTING FOR EMPLOYMENT

5-PROVIDENT FUND
A provident fund is a form of social safety 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
The bonus is the share of employees in the profit of an
employer. The minimum qualifying employment period is 90
days or above whether 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 to the expense account.


Bonus account (Dr.)
Cash/Bank

xxxx
xxxx

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ACCOUNTING FOR EMPLOYMENT

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 the salary is
charged to the expense account.
Leave Encashment A/c (Dr.)
Cash/Bank (Cr.)

xxxx
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 SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL
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ACCOUNTING FOR EMPLOYMENT

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.
WRITERS VIEW

WRITTEN BY:

SYED AQEEL RAZA

MASTER OF COMMERCE & POLITICS