The recording of wages

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Most of an individual expenditure is financed out of current income – that is out of earnings. The majority of people work for organisations and are not self-employed. For an organization, the design of pay system is one of the most important of management decisions and must take into account a wide range of human and material factors. There are two major bases on which remuneration is calculated: (a) time rates; (b) payment by results.

Time rates is the most common method and quite simply means that the employer agrees to pay and the worker to accept a fixed amount of money for a specified unit time, such as per hour, per week, per month.

The purpose of payment by result (PBR) system is to overcome, where possible, the major drawback of time rates – that is lack of incentive. A PBR system is often used where an organisation’s output is fairly standard and repetitive. PBR may be associated with work study, where a given task will be given a time allowance for the task and a bonus paid on any time saved.

Another form of PBR is the Piecework system whereby the employee is paid an agreed rate for unit produced.

Now let us consider the systems involved in recording and paying wages.

Wages Procedure

Documents Accounts Department

Clock cards Wages – Gross Pay

Salary cards Deductions

Tax tables Bank – Cash, Cheques

Pension records Giro payments

National Insurance Inland Revenue

Pay roll, Pay slips

Two of the largest payments involving expenses in business are the purchasing of stock and the payment of wages and salaries. Wages are normally paid weekly to non-office staff, whereas salaries may be paid monthly through the banking or post office systems, or by cheque.

It is becoming more frequent, however, to pay all employees through a bank or post office system as a matter of greater efficiency and, of course, better security.

The system of recording either wages or salaries is the same.

To record wages a clock card is often used to time workers in and out of work. From the card it is then possible to calculate the number of hours worked, including any overtime or loss of hours worked. The cards then provide the information needed to write up the wages account.

The common broad band of Income Tax paid by most employees was levied at 25%. This is the basic tax.

National Insurance contributions, levied at a certain percentage rate, is paid by both employee and employer.

The above deductions are statutory and are demanded by law to be paid to the Inland Revenue. The rates tend to get changed from time to time by the Chancellor of the Exchequer in his Budget Statement.

Tax tables and National Contribution tables are available to payroll clerks to enable them to make the appropriate deductions. These deductions are variable because they depend on each employee's personal allowances.

Other deductions such as pension scheme contributions, social fund, trade union fund and so on, may be voluntary.