Accounting for Labour costs
We will contain an overview of accounting for labour costs as:
a) Gross Earnings
It is illustrated as item A that appears like a credit in the wages account and like a debit in the wages analysis control. The gross earnings are analyzed to illustrate the several deductions leaving net pay and indirect and direct wages also are charged to a range of account codes
b) PAYE tax
It is illustrated as item C that is credited to a PAYE tax account before being paid to the US revenue Authority via the employer. Item X illustrates the payments from the bank account or credit and the clearing of the PAYE tax account or Debit
c) National Hospital Insurance Fund or NHIF Deductions
The national insurance deduction of employee is credited to a national insurance account as Item D. In addition the employer creates a national insurance contribution for all employees. It is illustrated as item F that is debited to an expense account and credited to the national insurance account. Net insurance or D+F is paid to the national Inland Revenue. After that item Y illustrates the entries, which clear the national insurance accounts or Debit and record bank payment or Credit. The national insurance of employee is a business overhead expense.
d) Other deductions
It involves such items like pension contributions and trade union subscriptions. The initial deductions from employees are credited in deductions account or Item E before payment is created to the suitable fund.
e) Net pay
This is illustrated as item B that is the balancing figure in the wages account or debit and while payment is made, this is illustrates in the bank account or credit
f) Direct Wages
Item T illustrates the credit to wages analysis control and the debit to job or product accounts. Individual accounts would be maintained for all job or product in addition to overall control account.
g) Indirect Wages
This is a simple analysis transaction that is debited to overhead departmental account or expense accounts.