For one month an employee's gross pay is £2,500. Income tax deducted under PAYE is £380, employee NIC is £220 and the employee's pension contribution is £100. Employer NIC is £300. What is the total employment expense charged to profit or loss for the employee?
Answer and explanation
Correct answer: A. £2,800
- Step 1: The expense is the gross pay plus the employer's own costs.
- Step 2: Employee deductions (PAYE, employee NIC, pension) are part of gross pay and are not extra expenses.
- Step 3: Expense = gross pay £2,500 + employer NIC £300 = £2,800.
Answer
£2,800.
Why not the others: £1,800 is the net pay that the employee receives, after deductions. £2,500 omits the employer's NIC, which is a cost of employing the person. £3,180 adds the PAYE deduction on top of gross pay, double counting it.
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