ACCA Applied Knowledge · Business and Technology · The relationship between accounting and other business functions
An employee's gross monthly pay is $3,000. Income tax deducted is $450, employee pension contributions are $150, and the employer's social security cost is $240. What is the total cost to the employer of employing this person for the month, assuming no other costs?
The total employer cost is $3,240, being gross pay of $3,000 plus the employer's social security of $240. Income tax and employee pension contributions are deductions from gross pay, already included in the $3,000, so they do not increase the employer's cost.
- A$3,240Correct
- B$3,000
- C$3,390
- D$2,400
Explanation
Employer cost is gross pay plus employer on-costs: 3,000 + 240 = 3,240. Tax and employee pension contributions are deducted from the gross pay, so they are not additional employer costs. $2,400 wrongly deducts tax and pension then ignores on-costs; $3,390 wrongly adds deductions.
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