Reasonableness test on wages and salaries

This was an OT Q on yesterday's exam?

Yes, how do we solve this?

It's asking for a "test in total" analytical procedure. Before I write an answer can you please confirm employee numbers and dates are correct, I.e. company recruited 40 people (260 - 220) on 1.5.X4

The information given above is the same as what was given in the exam :(

They did mention increase in employees occurred evenly throughout the year

Apologies for the delay in responding, I have deadlines to meet at the moment: Company X had 220 employees at 30.04.X4 and a wage bill of 8.197m. Therefore, average annual salary is 37259 (8.197/220) They had 260 employees at 01.05.X4. If there were no other changes, estimated wage bill for 20X5 would be 9687364 (260*37295) However, there are two changes: increasing # of employees and salary increase: Salary increas is 1/2 way through the year, therefore need to consider separately 1st and 2nd 6-month periods: They had 300 employees at 30.04.X5. Employees increased evenly during the year. i.e. increase of 40 over the year, so increase of 20 in each 6-month period For 6 months to 31/10/X4, estimated wage bill is: average # of employees x 6-month salary = (260+280)/2 x $37259/2 = 5,029,965 For 6 months to 31/10/X4, estimated wage bill with 2% increase is: average # of employees x 6-month salary = (280+300)/2 x $37259/2*102% = 5,510,606 Therefore estimate is 10540571.1 i.e. $10.541m

Thank you! So we don’t consider the decrease in statutory state deductions? Can I please get a reasoning on this?

So if you're in the UK, employees pay National Insurance Contributions (may be called Social Security Insurance or similar in other countries). This is an example of a statutory deduction - employers must deduct this from employees' gross pay and pay it over to a tax authority. It only affects the employees - who are paid "net" of deductions. It doesn't affect the cost to the employer - they are merely collecting taxes for the state.