Question

Based on following text in your own words, list and define the four categories of employment income, providing an example (other than regular pay) for each category.

Employment Income

An individual working for an employer receives compensation or pay, known as remuneration, for the services they perform. Where an employee-employer relationship exists, remuneration is referred to as employment income. Employment income can be categorized into earnings, allowances, benefits and taxable expense reimbursements.

Earnings

Earnings are dollar amounts the employer pays an employee for the work they perform. Earnings can be paid as:
· a salary
· a rate for each hour worked
· a rate per piece of goods produced or picked
· a disability payment for time off work due to illness
· a payment for vacation time
· a premium payment for overtime hours worked
· a premium payment for hours worked on shift

Deciding which types of earnings are paid and how they are calculated is primarily a decision made by the employer. Earnings are pensionable, insurable and taxable, and therefore subject to all statutory deductions.

Allowances

Allowances are additional dollar amounts paid to employees for the use, or anticipated use, of their personal property for business purposes. Allowances can also be provided to employees to cover the cost of personal living expenses associated with employment. The most common types of allowances cover the costs incurred by the employee for car, meals, uniforms, safety shoes or other particular types of clothing for business reasons. Under certain conditions, allowances are not considered employment income and therefore are not subject to statutory withholdings.

Benefits

Benefits are dollar values attributed to something the employer has either provided to an employee or paid for on an employee’s behalf. Usually, when an employer provides an employee with something (for example, a company-leased automobile is given to the employee for both business and personal use) or pays for something on an employee’s behalf (for example, group term life insurance premiums), it results in a benefit to the employee. There are certain situations where benefits are not included in employment income and therefore are not subject to statutory withholdings.

Expense Reimbursements

Similar to allowances, expense reimbursements are also dollar amounts paid to employees to cover expenses that they incur while performing their job. For the most part, expense reimbursements generally fall outside of payroll because they are business-related and therefore not employment income to employees. These expenses are claimed on an expense report, supported by receipts, and usually submitted directly to the accounting department for reimbursement. As such, they are not considered in the calculation of an employee’s pay. Some organizations choose to reimburse expenses through payroll in which case they are not subject to any statutory deductions; they will, however, affect the net pay. Any reimbursements made to an employee for personal living expenses are considered taxable to the employee, included in income and subject to statutory withholdings.

Answer 1

Ans. An empoyee working for an employer gets paid for the work done in terms of wages and salary often termed as employment income. However apart from regular pay the employer also provides some other benefits and facilities to ease the working environment and make an employee feel rewarded and motivated to give his best for the epmloyer during his work tenure. These perks and benefits can be classified in the following four categories:

1. Earnings are the actual dollar payment received by an employer for employment work. Apart from pay for work it includes payment for illness, payment for vacation, paid leaves, etc.

2. Allowances are those benefits that are given to an employee as a reimbursement for use of his personal property and personal living expenses like commuting expenses from home to work, free meals, free uniform, etc.

3. Benefits are those perquisites given to an employee for the upkeep and maintenance of facilities either given directly by the employer or paid for the employee by him. These includes company provided residence with housekeeping staff, leased car, group insurance premium, etc.

4. Expenses are also reimbursed as a form of payment excluding direct pay. An employee sent on a business tour can claim all the normal tour and travel expenses on provision of proper bills and receipts.

Thuse these are the four categories of non employment payments made by an employer to employee.