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Take these four steps to account for employee costs and contributions correctly

by , 12 September 2014
According to the Practical Accountancy Loose Leaf Service, the most significant group of expenses in the statement of comprehensive income (income statements) of many companies is employee expenses. For example, pension and provident fund contributions, trade union contributions and personal expenses borne by the company.

The Loose Leaf Service goes on to say what's concerning is that most businesses get the accounting treatment of these employee perks wrong. As a result, they face severe consequences - SARS tax penalties are just the tip of the iceberg...

Luckily, you can avoid suffering the same fate.

Take these four steps to account for employee costs and contributions correctly so you can avoid SARS penalties.


Four steps to account for employee costs and contributions


Step #1: Keep a control account system

To maintain control of your accounts and avoid errors, use control accounts in your general ledger.

In addition, use a salaries journal, listing gross salary, all the deductions, overtime, etc, per employee as well as a total per month or week that can be agreed to your general ledger.

Step #2: Create a monthly salary pay slip

Record the monthly salary on this pay slip, showing gross earnings and total income, as well as any deductions.
 
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 Step #3: Record any amounts you withhold 

Every month your company will withhold certain amounts to pay over to SARS, for example.
In your salaries journal, keep track of this to accurately show how much you debit from the total salary amount.

Step #4: Determine the cost to company

According to the Practical Accountancy Loose Leaf Service, the onus is on you to know exactly what your employees cost the company.

Taking these four steps will help ensure you account for employee costs and contributions correctly and avoid SARS penalties.

PS. Here is an amazingly simple way to manage your financials, with the Master Budget Series


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