Question

A business has the following payroll costs for a month:

Gross pay £38,600
Income tax £5,400
Employees' national insurance £3,100
Employer's national insurance £3,500 What is the wages cost to the business for the month?
A £38,600 B £42,100
C £47,100 D £50,600

Answer 1

The total wages cost to the business for the month is £47,500, which includes gross pay and both employees' and employer's national insurance contributions.

Step-by-step explanation:

The question inquires about the total wages cost to the business for the month after including payroll costs such as gross pay, income tax, employees' national insurance, and employer's national insurance. To calculate the wages cost, we add the gross pay to both the employee's and employer's national insurance contributions. The gross pay is £38,600, the employee's national insurance is £3,100, and the employer's national insurance is £3,500. Therefore, the total wages cost is £38,600 + £3,100 + £3,500 = £47,500. We do not include income tax in this calculation because it is a deduction from the employee's wages and not a cost paid by the employer.

It is important to understand that the income tax and portions of the social security contributions are deducted from the employees' gross pay, but the employer also incurs costs by matching a part of those social security contributions. Businesses need to be aware of both the deductions from employee wages and the additional taxes they are responsible for, based on those salaries, to fully understand the financial impact of employment on their operations.