Unit VI Part 1

Accounting for Salaries

Background
Every business that has employees is required to keep some kind of record of wages and salaries paid. A business
must have correct information about the reported earnings of its employees in order to make proper payment to them
and in order to debit the amounts they have earned to the correct accounts. All businesses are required by law to
keep earnings records for each employee and must be able to prove the correctness of the various required
government deductions and contributions (e.g., taxes, SSS, hilhealth, etc.!, which employers and employees pay.
Employees want to be sure that the amounts they receive on payday are the amounts to which they are rightfully
entitled. "he summary of the employees# salary is prepared in a report called payroll register. "his is accomplished
depending on the payroll period being followed by the company either in a weekly, semi$monthly or monthly basis.
%ecording Salary Expenses
Overview
All business entities normally hire employees to perform its various operations. Salaries of these employees must be
properly computed and paid at a specified time (e.g. weekly, bi$monthly, monthly!.
&n this section, readers will be introduced on how to 'ournali(e transactions affecting payment of employees# salaries
with corresponding deductions as required by law or due to some other reasons such as loans made by employees
from the company.
Social Security System
)nder * +o. ,-, .no person shall be employed unless he has a social security number./ &t is therefore a
requirement that all employees in the private sector be members of the Social Security System (SSS!.
"he system provides benefits and services to its members which include the following0 salary loans,
educational loans, housing loans, sickness and death benefits, unemployment benefits, disability benefits,
pension benefits and reimbursement of funeral expenses for deceased members. &n consideration for all
these benefits, the employee is required to make a monthly contribution in accordance with a contribution
table provided by the SSS. "his contribution of the employee is deducted from his salary. "he
corresponding contribution of the employer is an operating expense, i.e., SSS Contribution Expense.
Philhealth
"he hilippine 1edical 2are 2ommission (122! was established to provide hospitali(ation and other
medical benefits to its members and their dependents. 2ontributions are made according to a given table.
Similar to SSS, the contribution is shared between the employee and his employer. "he contribution of
the employee is deducted from his salary. "he contribution of the employer is an operating expense, i.e.,
Philhealth Contribution Expense.
Pag-ibig Fund
"he ag$ibig 3und is a provident savings and housing fund for employees established under .*. +o.
456,. &t aims to generate mass savings geared towards financing homes for its members. All private
employees who are members of the SSS and their employers are covered by the fund compulsorily. "he
employer and its employees in accordance with the pag$ibig contribution table make contributions to the
ag$ibig 3und.
Witholding Income Tax
)nder the 7ureau of &nternal %evenue regulations, every employer is required to deduct and withhold
income tax from the salary of its employees in accordance with a withholding tax table. "he amount of
income tax to be withheld from the employees will depend on whether the employee is single, married, a
head of the family, a married woman whose husband is also working, and on the number of his qualified
dependents.
Illustration
+o. 4
"he following is an illustration of how to record salary expense with various deductions0
September 89, ,9:4 transaction0
;. <abrador, 2A paid salaries to employees, 8,,699. *eductions were made for the following0 SSS, =>>.56?
hilhealth, 8-8.56? ag$ibig, >69 and withholding taxes, ,,@69.
Sept. 89 Salaries And Aages Expense 8,,699
SSS remiums ayable =>>.56
hilhealth 2ontributions ayable 8-8.56
ag$&big 2ontribution ayable >69.99
Aithholding "axes ayable ,,@69.99
2ash ,5,>@=.69
"o record payment of salaries for the
period Sept. 4$89
Illustration
+o. ,
"he following are illustrations of how to record remittances made to different government agencies0
Bctober 49, ,9:4 transaction0
%emitted to 7ureau of &nternal %evenue (7&%! the tax withheld from employees# salaries for the period Sept. 4$89.
Bctober 49 Aithholding "axes ayable ,,@69
2ash ,,@69
"o record remittance made to 7&%.
Bctober ,9, ,9:4 transaction0
%emitted the amount due to SSS and hilhealth and ag$ibig computed as follows0
Employer#s share Employees# share
SSS 8,9-@.69 =>>.56
hilhealth >@5.69 8-8.56
ag$ibig =69.69 >69.99
"otal -,>@>.69 4,=>9.69
CCCCCCCCCCCCC CCCCCCCCCCCCCC
Bctober ,9 SSS and hilhealth 2ontributions Expense 8,58>.99
ag$ibig 2ontributions expense =69.69
SSS remiums ayable =>>.56
hilhealth 2ontributions ayable 8-8.56
ag$ibig 2ontributions payable >69.99
2ash >,>-5
"o record remittances made to SSS, hilhealth,
and ag$ibig.