definition
the process of paying employees
gross salary
employees total earnings before any deductions (company expense)
net salary definition
what employees recieve in cash
net salary equation
gross salary - withholding tax - employee social security (company only pays this amount to employee)
deductions from employee (withholdings) 2 accounts
- withholding income tax
- employee SS contribution
withholding income tax
company keeps this money and must pay to gov. in the next month (% of GS)
employee SS contribution
company keeps and pays to SS next month
% of GS
Companys own SS contribution
- extra cost for company (expense)
- doesnt affect employees net salary
total payroll cost for company equation
GS + company SS contribution
payroll entry
D: Salaries and wages (640)
SS company contributions (642)
C: Cash in Banks (572)
Withholding tax payable (4751)
SS payables (476)
- company
- employee
payroll example
GS = 100
% withholding tax = 20%
% SS employee contribution = 4%
% SS company contribution = 30%
D: Salaries and wages 100
SS company contributions 30
C: Cash 100-20-4 = 76
Withholding tax 20
SS payables
- company 30
- employee 4
salaries and wages
expense
SS company contributions
expense (to be paid at end of month -> accrual principle means it is expensed now)
cash in banks
Decrease in asset
SS payables (company+employee)
liability
withholding tax payable
liability
