Chapter 4

Payroll Accounting

Edited July 2017

Accounting Department – Academy of Finance All rights reserved 1

  Purpose of Study

 Provides basic understand of payroll accounting in

enterprises
 Improves student’s ability in collecting documents and
presenting information related to payroll in financial report
 Introduces case study for better understanding of practical
works

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  Requirement for students

• Understand current regulations related to payroll and payroll

related compensations
• Work well with the introduced exercises and case study

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 Learning materials
* Financial Accounting text book (Chapter 5).
* Law on Social insurance No.58/2014/QH13 dated 20/11/2014
* Decree No.152/2006/NĐ - CP dated 22/12/2006 “Detailed
implementation of some articles in Social insurance law”
* Circular No.03/2007/TT- BLĐTBXH dated 30/01/2007 “Detailed
implementation of decree 152/2006
* Decree No.05/2015/NĐ-CP (article 3; article 21 ...)
* Employment law No.38/2013/QH13 dated 16/11/2013 effective
from 01/01/2015
* Decree 28/2015/NĐ-CP QĐ Detailed implementation of
unemployment insurance in employment law
* Circular No.28/2015/TT-BLĐTBXH
* Law on Health insurance No.25/2008/QH12 dated 14/11/2008;

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 References
• Law No.46/2014/QH13 dated 13/6/2014 amendment and
supplementation some articles in Social insurance Law effective
from 01/01/2015;
• Decree 191/2013/NĐ-CP dated 21/11/2013 Detailed
implementation on trade union financing
• Temporary regulation on collecting, using and managing trade
union fee according to 2012 trade union law
• Circular 23/2015/TT-BLĐTBXH dated 23/6/2015, guidance on
salary regulated on Decree 05/2015/NĐ-CP: How to calculate
overtime salary
• Decree No.959/QĐ-BHXH dated 09/09/2015 on collecting and
managing Social insurance, health insurance, unemployment
insurance; social insurance book, health insurance card
• Circular 200/2014/TT – BTC dated 22/12/2014

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 List of contents
4.1. Roles of payroll accounting
4.2. Classification of payroll and payroll related
compensations
4.3. Employment calculation
4.4 Accounting for payroll and payroll related
compensations

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4.1. Roles of payroll accounting
4.1.1. Payroll and roles of payroll accounting

Labor is one of the most important activities for social

* Labor:
development

Labor subject
-3 factor of manufacturing process Labor tools
Labor force

- In an enterprises: The number of employees and their skill shall effect on

labor productivity and plan completion

Salary (wage) is an economic term related to labor force

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4.1.1. Payroll and payroll related compensation

*Salary definition:

* Salary payment :
Salary is paid based on worked hours or labor result

* Why is salary important?

- Used for reproduce labor power/capacity
- Sufficient salary would increase labor capacity
Output of
Manufacture
Labor process Salary
productivity
More innovation

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 4.1.1. Payroll and importance of payroll and payroll
related compensation management

* Purpose of payroll related compensation

- Purpose of Social insurance

- Purpose of Health insurance
- Purpose of Unemployment insurance
- Purpose of Trade union fee
The above compensation and salary are labor expense

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4.1.2 Management requirement

From the importance of salary

 Employee has to be classified according to suitable criteria, such
as:
- Quantity of employees in term of sex, range of age, skill and
qualification….
- Quantity of employees: Health, skill level, working hours, quality
and quantity of outputs…
 Salary plan is suitable with business plan
 Make payment and record payroll transactions in accordance with
prevail regulation

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4.1.3 Classification of employee:

Employee classification

According to According According to According Accord

employment to work skill, to age ing to
contract department qualification sex

Business Non-
department business Health
departm care
ent Children
Daycare

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 4.2. Payroll, payroll system and payroll related
compensation

4.2.1 Types of paroll

4.2.2 Payroll system
4.2.3 Social insurance, health insurance, unemployment
insurance and trade union fee

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 Time based salary
4.2.1. Types of payroll
Job based salary
a. Time based salary

* Definition:

* Formula:
Time based salary = Actual working time x Rate of pay
Advantages
Disadvantages
* Comments:
Application conditions
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 4.2.1. Type of payroll
b. Job based salary
* Definiton

• Formula:
Job based salary = Unit produced x Rate per unit

Advantage

Disadvantage
* Comments:
Application conditions

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4.2.2. Payroll system

Payroll system

- Salary paid for working hours (time based salary, job based
salary….
- Salary paid for non-working hours (training course, conference,
annual leave…)
•Over time salary and other bonus…
•Regular bonus (salary based bonues) ...

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 4.2.3. Payroll related compensation

* Social insurance
By employers -> expenses
- Contribution
By employees – deduct from salary

- Usage: provides employees with benefits for pension, early

retirement, survivorship, sickness, maternity, occupational
accident and diseases
* Health insurance
By employers -> expenses
- Contribution
By employees – deduct from salary
- Usage: provides employees with health care services (such as
inpatient and outpatient services at all health care levels
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 4.2.3. 4.2.3. Payroll related compensation

* Unemployment insurance

By employers -> expenses

- Contribution
By employees – deduct from salary

- Usage: provides unemployment compensation to an employee

when they loses their job or terminates labour contract with the
employer.

* Trade union fee

- Contribution By employers -> expenses

- Usage: a source of fund for activities of trade union

organization in enterprises.
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4.3. Accounting for payroll and payroll related compensation
4.3.1. Labor force calculation
The number of employees
Labor force calculation is calculate Labor duration
Labor result
- The number of employees:
+ Content
+ Source document
- Labor duration:
+ Content
+ Source document
- Accounting for payroll
+ Content
+ Source document

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4.3.2. Salary and social insurance calculation
* Salary and social insurance calculation
- Monthly, salary and social insurance calculation are based on the
following documents

+ Source documents of payroll accounting

+ Current regulation related to national salary policy

Based on the above documents, accountants prepare:

- Salary payment sheets (No. 02-LĐTL)

- Social insurance payment sheets (No. 04-LĐTL)
- Bonus payment for each department or manufacture unit

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4.3.2. Salary and social insurance payment

The above sheets are source document for payment of salary,

payroll related compensation …. for employees

Payroll and payroll related compensation allocation sheet (K***7)

 4.4 . Accounting for payroll and payroll related
compensations

4.4.1. Source documents

4.4.2. Accounts used
4.4.3. Common transactions

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 4.4 . Accounting for payroll and payroll related
compensations
4.4.1 Source documents:
Timesheets
Timesheets for working overtime
Salary payment sheet
Bonus payment sheet
Confirmation for work completion
Overtime payment sheet
Salary and social insurance allocation table

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4.4.2. Accounts used TK 334 – Salary payable
TK 338 – other payable
* TK 334 – Salary payable
To record transactions related to salary and payroll related compensation
payable and payment to employees,...
Acc 334

• Salary and other payment have 24

been made or paid in advance
• Payment is deducted from
employees’ salary
• Salary and payroll related
compensations payable to
employees

•EB (exceptional): Overpayment to •EB: Salary and other

employees payable to employees

Acc 334 3341 – Payable to employees

3348 – Payable to others
4.4.2. Account used
* TK 338 – Other payables
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Acc 338
•Social insurance payable to • Social insurance, health
employees insurance, trade union fee
• The compensations paid to deducted from expenses or
related authorities employees’ salary
• Expensed trade union fee • Overpaid salary related
compensations

•EB (if any): Overpaid •EB : Other payables

compensation
4.4.2. Account used

• 3382 – Trade union fee

• 3383 – Social insurance
Acc 338
• 3384 – Health insurance
• 3386 – Unemployment insurance

Other related accounts:

Acc 335- Accrued expenses
Acc 622- Direct labor cost
Acc 627- Manufacturing overhead cost
Acc 111,112, 138…

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 4.4.3 Common transactions
* Accounting for payroll Acc 622, 627, 641, 642
Acc 334
Acc 338 (2,3,4,6,8)
(1b) Calculate salary payables
(3) Payroll related compensation
deducted from employees’ salay
(8) Unpaid salary of absence Acc 353(1),622,627,641,642
employees
(2) Bonus payables
Acc 111,112,511(333)
(1a) Advance payment of the month Acc 338(3)
(7) Salary payment
(4a) Social insurance managed by
the enterprise
TK 141, 138
(5) Electricity/water expenses Acc 138(8)
deducted on employees’ salary
(4b) If the social insurance managed
TK 333(5) by related authorities

(6b) PIT
payment on (6a) Personal income tax
behalf of deducted from employees’
employees salary 27
* Accounting for payroll related compensation

TK 338 (2,3,4,6) TK 622, 627, 641, 642

TK 334
(1) Social From
insurance, expenses
(2) Social insurance paid health TK 334
to employees insurance, From
trade union employees’
fee, salary
TK111,112 unemploymen TK111, 112
t insuarnce
(3) The compensation (4) Overexpensed trade
payment to authorities union fee is compensated
or employees

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HVTC 28
  Accounting journal and information presentation
on financial statement
* Accounting journal:
•If the company applies document journal method
- Sheet No.4: (Cr. Acc334, 338/Dr. Acc622, 627)
- Sheet No.5: (Cr. Acc334, 338, 335/Dr. Acc641, 642)
- Journal No.7: Cr. Acc334, 338/Dr. Acc622, 627)
-Journal No.1, Journal No.2
-Ledger for Acc 334, 338…..
-Detailed account of 3341, 3348, 3382, 3383, 3384, 3386….
•If the company applies general ledger method
* Information presentation on financial statement:
•On balance sheet: Item“Salary payable to employees”
•On cash flow statement(if the company applies direct method):
Item“Cash paid to employees”

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Examples: Company X produces product A, the
following information is available:
(Unit: 1,000 VND)
1/ Salary payable to employees
- Direct labor in manufacturing process: 100.000
- Manufacture supervisors: 20.000
- Sales personnel: 10.000
- Administrative personnel: 70.000
2/ Assume that the salary payable = salary for insurance
calculation. Rate of payroll related compensations is
corresponding with current regulations.

Requirements: Calculate and make journal entries

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Answers:
1/ Salary payables
Dr. Acc622: 100.000
Dr. Acc627 (1): 20.000
Dr. Acc641 (1): 10.000
Dr. Acc642 (1): 70.000
Cr. Acc334: 200.000

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 Items 23.5% deducted from 10,5% deducted from Total
expenses employees’ salary
Social 200.000 * 17,5% = 36.000 200.000* 8%= 16.000 52.000
insurance
Heath 200.000* 3% = 6.000 200.000*1,5% = 3.000 9.000
insurance
Unemployme 200.000*1% = 2.000 200.000* 1% = 2.000 4.000
nt insurance
Trade union 200.000*2% = 4.000 - 4.000
fee Nợ TK 622: 24.000
Nợ
Total TK 627 (1): 48.000
4.800 21.000 69.000

Dr. Acc641 (1): 2.400

Dr. Acc642 (1): 16.800
Dr. Acc334: 21.000
Cr. Acc338: 69.000
(3382: 4.000; 3383: 52.000;3386: 9.000; 3384:4.000)
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