Page 145 - BA2 Integrated Workbook STUDENT 2018

Integrated accounting systems

Accounting for labour

Before looking at integrated accounts in operation, we need to discuss the detail of
accounting for the cost of labour.

2.1 Components of the labour cost

 Gross wages – The total amount of pay for each employee

 Net wages – Amount received by the employee

Net wages = gross wages – deductions

 Deductions (in the UK):

– Income tax. Employers deduct income tax from gross wages before they
are paid to the employee. This is known as pay-as-you-earn (PAYE).

– National Insurance. Employers also deduct a social security tax called
national insurance (NI). This is made up of two parts, employee and
employer deductions.

 Bonuses – Extra paid to employees over and above their normal wages.
Bonuses may be paid on an individual task basis or may be for exceeding
productivity targets in a period.

 Overtime – Payment for extra hours worked. It is common for hours worked in
excess of the basic working week to be paid at a higher rate per hour. The extra
amount paid is usually referred to as overtime premium.

 Idle time – Payments made when an employee is available for work and is
being paid, but is not carrying out any productive work. Idle time can arise for
various reasons including machine breakdown, lack of orders or unavailability of
materials.

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