Cash payment to and on behalf of employees is:

The correct answer is Option (3) → operating activity

Operating activities are the main revenue-producing activities of the business. Paying salaries, wages and other benefits to employees is part of running the business every day, so AS-3 lists cash payments to and on behalf of employees as an operating cash outflow.

Option (1) financing activity — Incorrect. Financing activities change the size of owners' capital and borrowings, such as issuing shares or repaying loans.

Option (2) investing activity — Incorrect. Investing activities are the purchase and sale of long-term assets and investments.

Option (4) none of these — Incorrect. The payment has a clear place under operating activities.