ACCOUNTING FOR LABOUR

Transcription

1 ACCOUNTING FOR LABOUR 1a. Fast Ferraris Ltd manufactures and sells Ferraris made to order. The company employs five (5) employees in its Sydney based factory. Employee Name Hours Total Ed SIMPSON Supervision Leah JACKSON JOB Cleaning 5 43 Joe GELAO JOB JOB Idle time 2 40 Simon TATE JOB Sick leave 8 Maintenance 6 40 Steve GRIX Materials store We are given the following pay related information for the week ended 4 May 2012: Each employee normally works a 40 hour week. Any hours in excess of 40 are paid as overtime (i.e. at 1 ½ times the normal hourly rate). The supervisor (Ed SIMPSON) is paid $25 per hour and the remaining four (4) employees are paid $10 per hour. The timesheet summary for the week ended 4 May 2012 shows us the following additional information: Overtime premium is charged to factory overhead. The company accrues superannuation guarantee contributions at 9% of gross ordinary wages (calculate to the nearest whole dollar). The company reduces the appropriate accrual or provision for any leave paid. Payment of sick leave was approved for Simon TATE. PAYG tax withheld from all pays for the week ended 4 May 2012 totaled $675. There were no other payroll deductions. Required: a. Calculate the total payroll and total net earnings for the week. b. Prepare a general journal entry to record: i) the gross factory payroll for the week including any deductions ii) the allocation of labour costs as direct and/or indirect iii) the payment of net wages iv) any labour related costs (e.g. superannuation; payroll tax etc.) 1

2 SOLUTION to 1a. a. Employee Workings Gross Direct Indirect Sick Ed SIMPSON 40 hours x $25 $1,000 $1,000 Leah JACKSON 38 hours x $10 $445 $380 5 hours x $10 $50 3 hours x $5 (overtime) $15 Joe GELAO 38 hours x $10 $400 $380 2 hours x $10 $20 Simon TATE 26 hours x $10 $400 $260 8 hours x $10 $80 6 hours x $10 $60 Steve GRIX 40 hours x $10 $400 $400 TOTALS $2,645 $1,020 $1,545 $80 b. NET PAY (amount paid to employee) = GROSS WAGES DEDUCTIONS Gross wages includes: Wages earned for period + Allowances e.g. overtime, sick or holiday pay (incl. annual leave loading (17.5% of 4 weeks wages) + Incentives e.g. bonuses or commission Deductions include: Both statutory and employee approved deductions e.g. PAYG tax withheld; Union fees i) Dr Labour control (part of GROSS WAGES) $2,565 Provision for sick leave (part of GROSS WAGES) $80 (reduction in ALLOWANCE) Cr Accrued payroll (NET PAY) $1,970 PAYG withholding tax (DEDUCTION) $675 Being gross factory payroll payable for the week ending 4 May 2012 including PAYG withholding tax i.e. record total net amount payable to all employees ii) Dr WIP (DIRECT PORTION) $1,020 Factory overhead control (INDIRECT PORTION) $1,545 Cr Labour control $2,565 Being allocation of labour costs as direct and/or indirect iii) Dr Accrued payroll $1,970 Cr Bank $1,970 Being payment of net wages You could also be asked to prepare a general journal entry to accrue for sick leave, annual leave and public holidays as follows: Dr Factory overhead control $XX Cr Accrued sick leave $XX Accrued annual leave $XX Accrued public holidays $XX 2

3 LABOUR RELATED COSTS Additional costs incurred by employer over and above employee earnings e.g. Payroll tax Workers Compensation Insurance Superannuation The following entries are done to record any labour related costs: iv) Dr Factory overhead control $238 Cr Superannuation payable $238 Being superannuation applicable to factory payroll ($2,645 x 9%) If there was payroll tax, the entry to record it would be: Dr Factory overhead control $XX Cr Payroll tax payable $XX 3

4 1b. Pendle Hill Ltd pays each of its eight (8) employees the award wage of $375 for a 37.5 hour, 5 day week. Conditions of employment include: 4 weeks annual leave per year with 17.5% leave loading 10 workings days paid sick leave per year 10 working days paid public holidays per year Overtime is paid at 1 ½ times the normal rate. Labour related costs include: Workers Compensation insurance is 10% of gross wages (including leave loading) Payroll tax is 6% of gross wages (including leave loading) Employer s superannuation contribution is 9% excluding overtime and annual leave loading Required: Based on the above information, calculate an hourly rate per employee. SOLUTION to 1b. Total working weeks (per year) Total weeks 52 LESS: Annual leave 4 Sick leave 2 Public holidays GROSS WAGES i.e. earnings + allowances + incentives Base pay = = $375 / 37.5 = $ Annual leave = [4/44] x $10 per hour base pay = $ Annual leave loading = 17.5% of annual leave = $ Sick leave = [2/44] x $10 per hour base pay = $ Public holidays = [2/44] x $10 per hour base pay = $ TOTAL GROSS RATE = $ LABOUR RELATED COSTS Payroll tax = $ x 6% = $ Workers Comp. = $ x 10% = $ Superannuation* = ($ $0.1591) x 9% = $ TOTAL LABOUR RELATED COSTS = $ TOTAL COST TO FIRM = $ * As per the question, the calculation for superannuation excludes overtime and annual leave loading. 4

5 Notes: In working out the annual leave rate of $ (for example), you need to work out the annual leave weeks as a percentage of working weeks (not the total number of weeks in a year) and multiply this percentage by the base pay rate of $ per hour. Question: Why don t you divide the annual leave weeks by the total number of weeks in a year? Answer: You don t accrue any entitlements to annual leave, sick leave etc. when on holiday or on sick leave i.e. during the non working weeks of the year. How to interpret the answer to this question: When working out how much it costs to employ someone, the employer needs to take into account all the additional costs associated with his or her employment. In this case, for every hour worked by one of the employees in this factory, the employer needs to accrue $0.91 in relation to any annual leave to which the employee is entitled. Although the employee only receives $ per hour less any deductions, the employer has to budget for almost 1 ½ times the base pay rate when working out the true cost to the business of employing someone. 5