5. The Payroll

Question 1

Define payroll.

Answer 1

Payroll is the record of wages and salaries costs.

Question 2

What does the payroll record?

Answer 2

The payroll records all the individual amounts that appear on employees’ payslips, namely:

1. Gross pay to employees:
   - PAYE income tax
   - Employee’s NI contributions
   - Employee’s pension contributions
   - Net pay (cash paid to employees)
2. Additional costs for the employer:
   - Employer’s NI contributions
   - Employer’s pension contributions

Question 3

What is actually paid to the employee?

Answer 3

Gross pay is not the amount paid to the employee. The employer needs to make deductions from gross pay before paying net pay to the employee.

Question 4

Is payroll a source document?

Answer 4

The payroll is a source document as it contains information that is entered into the accounting system.

Question 5

What is the formula for total payroll cost?

Answer 5

Total Payroll Cost = Gross Pay + Employer’s NI + Employer Pension