Mada za sehemu hiiPrepare and maintain accounting recordsMada 8
- Prepare and maintain accounting records related to inventories (using different stock-taking systems (perpetual and periodic) and using different inventory valuation methods (FIFO, LIFO and weighted average))
- Prepare and maintain accounting records related to payroll (computations of gross pay and net pay, payroll summary for remunerations and deductions, and journal entries)
- Prepare and maintain accounting records related to equity-based investments (acquisition and disposal using different price quotations; returns on investments)
- Prepare and maintain accounting records related to businesses operating with branches (ledger accounts for dependent and independent branches)
- Prepare and maintain accounting records related to royalties (in the books of the lessor and lessee when the contract provides minimum rent and when it does not provide minimum rent)
- Prepare and maintain accounting records related to non-current assets (valuation, depreciation and disposal)
- Prepare and maintain accounting records related to hire purchases (in the books of hire vendors and hire purchasers)
- Evaluate the impact of using different inventory valuation methods on reported profits/losses and the financial position of a business
Payroll Accounting: Preparing and Maintaining Records
Payroll accounting is the process of calculating, recording, and managing all payments made to employees for their work. As a future accountant, you must ensure that employees receive the correct amount of remuneration at the right time while complying with Tanzanian laws. This study note covers how to compute gross pay and net pay, prepare payroll summaries, and record journal entries for payroll transactions.
Basic Pay
Basic pay is the fixed amount agreed upon in the employment contract, paid to an employee for their normal working hours. It does not include overtime, allowances, or bonuses.
Formula:
Or for monthly salaried employees:
Gross Pay
Gross pay is the total amount earned before any deductions. It includes basic pay plus all allowances, overtime payments, bonuses, and other benefits.
Formula:
Worked Example
Mr. Mlay works for Faraja Enterprise Ltd. His hourly rate is TZS 30,000 per hour. In one month, he worked 48 hours (normal working hours are 40 hours per week).
(a) Basic Pay:
(b) Overtime Payment (weekday overtime): Overtime hours = 48 - 40 = 8 hours Factor for weekdays = 1.5
(c) Gross Pay:
The standard working hours in Tanzania are 8 hours per day, 40 hours per week, or 176 hours per month (8 hours × 22 days).
Overtime Formula:
Standard Factors:
- 1.5 (150%) for weekdays
- 2.0 (200%) for weekends and holidays
After computing gross pay, various deductions are subtracted to arrive at net pay.
Statutory Deductions (Required by Law)
| Deduction | Employee Contribution | Employer Contribution |
|---|---|---|
| PAYE (Income Tax) | Progressive rates (see below) | - |
| NSSF (Private sector) | 10% of basic salary | 10% of basic salary |
| PSSSF (Public sector) | 5% of basic salary | 15% of basic salary |
| NHIF (Health Insurance) | 3% of basic salary | 3% of basic salary |
PAYE Tax Rates (2023/2024)
| Monthly Income (TZS) | Tax Rate |
|---|---|
| Up to 270,000 | NIL |
| 270,001 - 520,000 | 8% of excess over 270,000 |
| 520,001 - 760,000 | 20,000 + 20% of excess over 520,000 |
| 760,001 - 1,000,000 | 68,000 + 25% of excess over 760,000 |
| Above 1,000,000 | 128,000 + 30% of excess over 1,000,000 |
Note: NSSF and NHIF contributions are deducted before calculating PAYE (they are allowable deductions).
Voluntary Deductions
These include:
- Trade union contributions
- Insurance premiums
- Salary advances (repaid in installments)
- Staff loans
- Development levy
Net pay (take-home pay) is what remains after all deductions are subtracted from gross pay.
Formula:
Steps in Net Pay Calculation
- Calculate basic pay
- Add allowances and overtime to get gross pay
- Calculate statutory deductions (NSSF, NHIF)
- Calculate taxable income (Gross pay - allowable deductions)
- Calculate PAYE from taxable income
- Calculate other voluntary deductions
- Subtract all deductions from gross pay
Individual Earning Statement (Salary Slip)
A salary slip is given to each employee showing earnings and deductions for the pay period.
Format:
| Details | TZS | TZS |
|---|---|---|
| Name: ____________ | ||
| Month: ____________ | ||
| Basic Pay | xxx | |
| Add: Overtime | xx | |
| Transport Allowance | xx | |
| Housing Allowance | xx | |
| Meal Allowance | xx | xx |
| Gross Pay | xxx | |
| Less: PAYE | xx | |
| NSSF | xx | |
| NHIF | xx | |
| Salary Advance | xx | |
| Union Contribution | xx | xx |
| Net Pay | xxx |
Payroll Summary
A payroll summary shows all employees' earnings and deductions for a period. It helps in preparing journal entries and provides an overview for management.
| Employee | Basic Pay | Overtime | Allowances | Gross Pay | PAYE | NSSF | NHIF | Net Pay |
|---|---|---|---|---|---|---|---|---|
| A | xx | xx | xx | xx | xx | xx | xx | xx |
| B | xx | xx | xx | xx | xx | xx | xx | xx |
| TOTAL | xxx | xxx | xxx | xxx | xxx | xxx | xxx | xxx |
Journal entries record payroll transactions in the books of account.
Recording Salary Expense
| S/N | Particulars | Dr (TZS) | Cr (TZS) |
|---|---|---|---|
| 1 | Salary Expenses A/C | xx | |
| PAYE Payable A/C | xx | ||
| NSSF Payable A/C (Employee) | xx | ||
| NHIF Payable A/C | xx | ||
| Salary Advance Payable A/C | xx | ||
| Salary Payable A/C (Net Pay) | xx | ||
| (Being recognition of salaries and deductions) |
Recording Employer Contributions
| S/N | Particulars | Dr (TZS) | Cr (TZS) |
|---|---|---|---|
| 2 | Salary Expenses A/C | xx | |
| NSSF Payable A/C (Employer) | xx | ||
| (Being employer's contribution to NSSF) |
Recording Payment of Salaries
| S/N | Particulars | Dr (TZS) | Cr (TZS) |
|---|---|---|---|
| 3 | PAYE Payable A/C | xx | |
| NSSF Payable A/C | xx | ||
| NHIF Payable A/C | xx | ||
| Salary Advance Payable A/C | xx | ||
| Salary Payable A/C | xx | ||
| Bank | xx | ||
| (Being payment of salaries and deductions) |
Closing Entry
| S/N | Particulars | Dr (TZS) | Cr (TZS) |
|---|---|---|---|
| 4 | Statement of Profit or Loss | xx | |
| Salary Expenses A/C | xx | ||
| (Being transfer of salary expense to profit or loss) |
Mr. Jumanne has a basic salary of TZS 780,000 per month. He receives:
- Meal allowance: TZS 10,000 per day (22 working days)
- Transport allowance: TZS 6,000 per day (22 working days)
- Rent assistance: 10% of basic salary
Deductions:
- NHIF: 3% of basic salary
- NSSF: 10% of basic salary
- Development levy: 1% of gross pay
- Salary advance: TZS 150,000
- PAYE: Using the rates provided in the textbook
Solution:
| Details | TZS | TZS |
|---|---|---|
| Basic Salary | 780,000 | |
| Add: Meal allowance (10,000 × 22) | 220,000 | |
| Transport allowance (6,000 × 22) | 132,000 | |
| Rent allowance (10% × 780,000) | 78,000 | 430,000 |
| Gross Salary | 1,210,000 | |
| Less: Deductions: | ||
| PAYE | 78,790 | |
| Development levy (1% × 1,210,000) | 12,100 | |
| NSSF (10% × 780,000) | 78,000 | |
| Life insurance (2% × 780,000) | 15,600 | |
| Salary advance | 150,000 | |
| NHIF (3% × 780,000) | 23,400 | 357,890 |
| Net Pay | 852,110 |
PAYE Calculation:
- Taxable income = Gross pay - NSSF - NHIF = 1,210,000 - 78,000 - 23,400 = 1,108,600
- Above 850,000: TZS 40,000 + 15% × (1,108,600 - 850,000) = 40,000 + 38,790 = TZS 78,790
A Form 5 student in Tanzania will use payroll accounting skills when helping a local shop owner in Mwanza or Arusha prepare monthly salary payments for their employees, or when working as a payroll clerk in a government office in Dodoma. For example, if a student helps their uncle who runs a small supermarket in Morogoro calculate the net pay for his three shop attendants, they would need to compute basic wages, add overtime, subtract NSSF and PAYE contributions, and prepare the payroll summary before withdrawing cash from the bank to pay the employees.
Swali
What is included in the calculation of an employee's gross pay?
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