Payroll Unit 3 - Payroll Monthly
1. Complete the Payroll for the individuals below (materials to complete assignment).
Assignment should be submitted to email@example.com.
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MATERIAL TO COMPLETE ASSIGNMENT
PAY AS YOU EARN (PAYE)
PAYE is the method used for deducting income tax from wages and salaries received from employment. The employees, under the salary system, pay their income tax as they earn their money. PAYE is applied to all who are employed, irrespective of age, and who received earned income exceeding the allowable deductions.
Taxes are each week or month by employers from all their employees, thus relieving the Inland Revenue authorities of the tasks of collecting the money from the individuals. The employer sends a collective payment to the BIR (Board of Inland Revenue) once a month.
NOTE: Any individual who makes over $$90,000 yearly in Gross Salary must pay PAYE. Therefore, employers who make $7500 or less a month do not pay PAYE ($7,500 x 12 = $90,000.
(Before 2023, the figure was 84,000.00)
HOW TO CALCULATE PAYE BASED UPON A GROSS MONTHLY SALARY OF $8200
(Your gross salary is your basic salary before deductions are taken out or overtime added)
Step 1. Calculate the Total Annual Income. Your Total Annual Income is calculated by multiplying your gross monthly income by the amount of months in the year.
Total Annual Income = 8200.00 x 12 months = 98,400.00
Step 2. Calculate the Total Annual NIS payment. Your Total Annual NIS is calculated by multiplying your weekly NIS payment by the number of weeks in the year.
Total Annual NIS = 79.60 x 52 weeks = 4139.20
Step 3. Calculate 70% of the Total Annual NIS payment.
4139.20 x 70% = 2897.44 (for those using a business calculator)
4139.20 ×70 ÷ 100 = 2897.44 (for those using a regular calculator)
Step 4. Calculate the Total Tax deduction.
Total Tax Deducted = 90,000.00 + 2897.44 = 92,897.44
NOTE: 90,000 is amount the government allows us to make without having to pay PAYE. You will always use 90,000 to find your Total Tax Deduction answer.
Step 5. Calculate the Chargeable Income
Chargeable Income =98,400 - 92,897.44 = 5,502.56
$98,400 is the figure from Step 1.
Step 6. Calculate the Tax on Chargeable Income.
Tax on Chargeable Income = 5,502.56 x 25% (or divided by 4) = 1375.64
NOTE: 25% is the standard rate to calculate PAYE. This amount would never change.
Step 7. Calculate the PAYE deduction
PAYE deduction =1375.64 ÷ 12 months = 114.64 (rounded off to 2 decimal points)
114.64 is the amount to be deducted monthly from the employee's Gross Salary.
Payroll for December 2020 (4 weeks)
Janet James monthly Gross Salary = $9000.00
HOW JANET'S PAYE WAS CALCULATED
1. Total Annual Income
9000.00 x 12 months = 108,000.00
2. Total Annual NIS
89.10 x 52 weeks = 4633.20
3. 70% of NIS payment
4633.20 x 70% = 3243.24
4. Total Tax deducted
90,000.00 + 3243.24 = 93,243.24
5. Chargeable Income
108,000.00 - 93,243.24= 14,756.76
6. Tax on Chargeable Income
14,756.76 x 25%= 3689.19
7. PAYE deduction
3689.19 divided by 12 months = $307.43 (rounded off to 2 decimal points)
Note: You should only calculate the PAYE if the monthly salary is MORE than $7,500 (starting from $7501) or else you would get a negative figure.