The following data were taken from the records of Abraham Co. for July 2008 E.C. that pays payroll to its employees according to Ethiopian payroll system.

Question

The following data were taken from the records of Abraham Co. for July 2008 E.C. that pays payroll to its employees according to Ethiopian payroll system.
Name
Abel Tena 
Basic salary........ 2400
Allowance......... 250
OT......... 30hrs up to 10:00pm
 Sara Chala
Basic salary....... 3200
Allowance............ 500
OT............... 20hrs 10:00pm-6:00am
Nega Girum
Basic salary.........1600
Allowance...........100
OT............. 10hrs weekend and 18hrs public hours
Additional information:
a. All employees are expected to render services of 160hrs per month and all of them did except Sara Chala who has served only 150hrs.
b. All employees are permanent employees except Abel Tena. c. The allowance of Nega Girum is not taxable. d. All employees promised to contribute 10% of their basic salary to the credit association Required:
i. Determine the gross earnings, ii. taxable income, iii. total deductions and iv. net pay of all employees

GPT-4o mini · Answer

To calculate the gross earnings, taxable income, total deductions, and net pay for each employee of Abraham Co., we will follow these steps:

1. Calculate Gross Earnings

Gross Earnings = Basic Salary + Allowance + Overtime Pay

Overtime Pay Calculation: Overtime pay rates are based on the basic salary. Let's assume standard rates as follows:

For Abel Tena: Regular OT rate for hours up to 10:00 pm = 1.25 times Basic Hourly Rate
For Sara Chala: OT hours from 10:00 pm to 6:00 am = 1.5 times Basic Hourly Rate
For Nega Girum: Regular weekend hours = 1.5 times Basic Hourly Rate, Public hours = 1.25 times Basic Hourly Rate

Basic Hourly Rate = Basic Salary / 160 hours

Let’s break down each employee's earnings:

Abel Tena

Basic Salary: 2400
Allowance: 250
Overtime (OT) Calculation:
- Basic Hourly Rate = 2400 / 160 = 15
- OT Pay = 30 hours * (15 * 1.25) = 30 * 18.75 = 562.5

Gross Earnings for Abel Tena:

Gross Earnings = 2400 + 250 + 562.5 = 3212.5

Sara Chala

Basic Salary: 3200
Allowance: 500
Overtime (OT) Calculation:
- Basic Hourly Rate = 3200 / 160 = 20
- OT Pay = 20 hours * (20 * 1.5) = 20 * 30 = 600

Gross Earnings for Sara Chala:

Gross Earnings = 3200 + 500 + 600 = 4300

Nega Girum

Basic Salary: 1600
Allowance: 100 (non-taxable)
Overtime (OT) Calculation:
- Basic Hourly Rate = 1600 / 160 = 10
- OT for Weekend (10 hours) = 10 * (10 * 1.5) = 10 * 15 = 150
- OT for Public Hours (18 hours) = 18 * (10 * 1.25) = 18 * 12.5 = 225
- Total OT Pay = 150 + 225 = 375

Gross Earnings for Nega Girum:

Gross Earnings = 1600 + 100 + 375 = 2075

2. Calculate Taxable Income

Taxable Income = Gross Earnings - Allowances (taxable portion)

For Abel Tena: Taxable Income = 3212.5 - 250 = 2962.5
For Sara Chala: Taxable Income = 4300 - 500 = 3800
For Nega Girum: Taxable Income = 2075 - 100 = 1975 (the allowance is not taxable, so remains 2075 as it is)

3. Calculate Total Deductions

Total deductions include the contribution to the credit association (10% of Basic Salary).

Abel Tena: 10% of 2400 = 240
Sara Chala: 10% of 3200 = 320
Nega Girum: 10% of 1600 = 160

4. Calculate Net Pay

Net Pay = Gross Earnings - Total Deductions

Now, let's summarize all calculations:

| Employee | Gross Earnings | Taxable Income | Total Deductions | Net Pay | |---------------|----------------|----------------|-------------------|-----------| | Abel Tena | 3212.5 | 2962.5 | 240 | 3212.5 - 240 = 2972.5 | | Sara Chala | 4300 | 3800 | 320 | 4300 - 320 = 3980 | | Nega Girum | 2075 | 1975 | 160 | 2075 - 160 = 1915 |

Final Summary

Abel Tena: Gross Earnings = 3212.5, Taxable Income = 2962.5, Total Deductions = 240, Net Pay = 2972.5
Sara Chala: Gross Earnings = 4300, Taxable Income = 3800, Total Deductions = 320, Net Pay = 3980
Nega Girum: Gross Earnings = 2075, Taxable Income = 1975, Total Deductions = 160, Net Pay = 1915

This completes the payroll calculations for the employees in July 2008 E.C.