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Pay Roll Accounting

Pay-roll accounting is generally considered to be a part of financial accounting. Computation of gross and net amount due to employees is the primary task involved under pay-roll accounting. For this purpose ‘Pay-roll’ and ‘Pay-slips’ are prepared.

Statutory requirements

(i) Factories Act, 1948 prescribes that every worker is required to put in 9 hours of work during a single day or alternatively, 48 hours in a single week. Excess over the limits laid down shall amount to overtime for which the worker shall have to be paid at a higher rate. Over time payment is usually at double the normal rate.

(ii) Certain amounts of bonus is compulsorily required to be paid by the employers, provisions regarding the same have been mentioned in the Payment of Bonus Act.

(iii) For payment of Wages Act, which every employer is required to take into consideration while designing a payment structure.

Pay-roll or wages sheet

The pay-roll records the amount of gross wages and net wages payable to each worker. It also specifies all deductions individually.

Gross wages

(i) Under time wage system: The amount of gross wages is calculated by adding up wages at ordinary rates plus overtime premium.

This may put in the form of following formula:

Gross wages = Ordinary wages + Overtime premium

Overtime premium = Overtime hours × Overtime premium rate

(i) Under piece wage system: Wages to workers under piece wage system may be paid in two ways:

(ii) At a fixed rate per article or job.

(iii) At a standard rate per hour for allowed hours for the job. The worker may be given bonus for completing the job in less than the allowed time.