Payroll Accounting Process

Because the debit and credit now have the same amount recorded, your entry is balanced, and all parties are satisfied. If you’re familiar with that process, then introducing a payroll journal entry into your routine should be like taking the training wheels off of a bike. Payroll journal entries are the optimal way to track these payroll expenses with minimal stress for in-person employees and any hybrid or remote staff you might employ.

Payroll accounting refers to an organization’s record of an employee’s compensation, including benefits, payroll taxes and money deducted from wages. Each journal entry is recorded on a general ledger (GL) that keeps a record of financial transactions for financial reporting purposes. A payroll journal entry includes employee wages, direct labor expenses, FICA expenses, payroll taxes, and holiday, vacation and sick days in the Debit section. Other items may be specialized payroll options, such as a 401k plan. The Credit section includes FICA taxes, state withholding taxes, federal withholding taxes, social security taxes, and Medicare taxes.

How to Calculate Payroll Taxes

You need to record all payroll transactions in your accounting books. But before you can do that, understand the basics of using debits and credits in accounting. A liability is any kind of financial obligation a company has from its past.

• It may require several iterations before you have confirmed that everything listed on the payroll register is correct.
• There are many different types of cloud-based accounting software available for small businesses.
• Calculate taxes and deductions to find out how much you need to withhold from employee wages and contribute as an employer.
• That said, some platforms that require a lengthy setup period take their time because implementing such powerful software is a complex process.
• You can earn our Payroll Accounting Certificate of Achievement when you join PRO Plus.
• Her work has been published in Sitepoint, Fast Capital 360, Social Media Today, WPMayor among other publications.
• The payroll program reads the master data and time data infotypes.

However, it’s important business owners monitor their accounts around payday to make sure there’s enough money for payroll and any tax payments. As you do your payroll accounting, record debits and credits in the ledger. Whether you debit or credit a payroll entry depends on the type of transaction made. The debits and credits in your books should always equal each other. Additionally, payroll software often comes with tools for managing your team’s paid time off (PTO) and administering employee health insurance and retirement benefits. Some payroll providers are professional employer organizations (PEOs) that fully replace an in-house HR department.

What are the top payroll software vendors?

Consider the extent of HR services you get with your payroll software, whether you truly need them, and whether paying more would justify these features. Your business is almost certainly required to report new hires to your state. This process can be tedious and prevent you from focusing on core business tasks, and many payroll services will handle it for you. The result is legal compliance alongside invaluable time savings. Of course, this high price can be a concern for some businesses no matter how much the included features justify the costs. This is why some payroll vendors offer only fully customized pricing.

As such, payroll software that offers 24/7 support is somewhat rarer than with customer-facing systems but far from nonexistent. Strive for this extent of support, but accept platforms that offer weekday phone support during typical Eastern Time and Pacific Time business hours. For businesses payroll accounting examples currently operating in multiple states or countries (or interested in doing so), cross-border payroll is a must. This extent of payroll service is typically available through vendors known for strong HR services since regulatory compliance becomes more complex with cross-border operations.

Fringe Benefits

If you’re getting lost in the logistics, here’s an example to help you visualize what the entry might look like. You may also need to pull reports for deductions, contributions, and other benefits.

Their company pays employees every two weeks for a total of 26 pay periods. There are many different types of cloud-based accounting software available for small businesses. The type of industry and number of employees are two factors that will dictate which accounting software is appropriate. For example, a freelancer would not need the same features in a piece of accounting software as a restaurant owner.

Second, payroll accounting provides an accurate and objective view of the overall employee cost. You will have an easier time understanding the incremental cost of your new employees. Recall that the paychecks issued on December 29 covered the work done by hourly employees only through December 24.

• To begin with, let me point out the difference between accounts payable that we discussed in the previous accounting lesson and payroll.
• Of course, before you can actually post a transaction to the books, a transaction must have occurred.
• Many payroll fintech firms, such as Atomic, Bitwage, Finch, Pinwheel, and Wagestream, are leveraging technology to simplify payroll processes.
• But if you follow these seven steps, you can learn how to account for payroll with ease.