Payroll Accounting with Payroll Journal Entry Examples

Other tax rates will be determined by Federal, state, or local laws and your employee’s W-4. The law requires overtime—hours worked in excess of 40 hours per week—to be paid at one-and-a-half times the regular hourly rate. Some employees are exempt from the FLSA, and the Act does not apply to independent contractors or volunteers because they are not considered employees.

And as long as you do everything according to the law and on time, your whole accounting system will thrive in no time. You have to calculate the amount of taxes withheld from your employee’s gross pay. Some withholdings and the employer’s portion of FICA were remitted payroll accounting examples on payday; others are not due until a later date. Some withholdings, such as health insurance, were recorded as reductions of the company’s expenses in Hourly Payroll Entry #1. We will assume the amounts in the following Payroll Entry #4 were remitted on payday.

What Are the Basic Types of Payroll Accounting?

The most common types of payroll schedules are weekly, biweekly, semimonthly (15th or 30th of each month) and monthly. These will be all the expenses recognized in your account on the books that haven’t been paid yet. You’re “accruing” these expenses even though they haven’t physically been covered yet, as accrual happens at the end of some accounting periods. This can be done through check or cash and is usually only done when an employee is let go or their payment needs a quick fix.

In that journal entry, you’re recording all of the deductions you have to take, as a business owner, from the employee’s check. For transparency and visibility, employees can find these deductions on their pay stubs. Investopedia conducted a review of payroll management and accounting software for small businesses and evaluated their cost, ease of use, features, integrations, and scalability. QuickBooks Online was considered the best overall software, while Xero was considered the best for micro-business owners. FreshBooks was best for service-based businesses, and QuickBooks Self-Employed was best for part-time freelancers, but Wave was the best free software.

Employee Benefits

Her experience has allowed her to learn first hand what the payroll needs are for small business owners. Notify your direct deposit processor of the amount of any direct deposit payments, and issue remittance advices to employees for these payments. The remittance advices may be sent by email or printed and handed out manually.

When you’re managing a business ledger, paying attention to detail and double-checking your work is important. After all, it’s the tool you use to track your money, and you want to keep it accurate. You can compile payment records for a single pay run or over a certain period. You can also better understand employee costs by tagging expenses and running reports, and breaking down expenses by category.

What is payroll accounting?

We will assume the amounts in the following Hourly Payroll Entry #4 were remitted on payday. Make a second journal entry when you give your employee their paycheck. When you pay the employee, you no longer owe wages, so your liabilities decrease. For these entries, record the gross wages your employees earn and all withholdings.

Payroll is the aggregate expenditure on wages and salaries incurred by a business in an accounting period. It can also refer to a listing of employees giving details of their pay. If you want to streamline your payroll processing, Hourly payroll software makes your life easier by automatically calculating and withholding taxes from your paychecks.