Understanding the basics of payroll accounting
Payroll accounting has to do with the calculation, the management, the recording, and the analysis of the employee’s compensations. The purpose of payroll accounting is to calculate the salary entitlement both gross and net of all the employees for the specified period of time. Payroll accountants usually use their financial journal entries to aid the summarizing of the organization’s transactions and total cash flow.
Some basics of payroll accounting.
When you are able to keep proper track of your employee’s work hours it helps you to provide accurate paycheck information and also be able to gather data about how your company spends its payroll funds and if you are giving the right pay stub to workers. Workers will receive a pay stub for each pay period, that itemizes how much they are paid. When employees are asked to log their hours based on the type of work they have done, production vs customer service,
- Wages and Salaries:
The amount of each employee’s pay stub depends fully on whether they are being paid by the hour or on a salary basis. For hourly workers, they make a specific amount for each hour they work. The department of labor requires owners of businesses to pay overtime wages of one and a half times the typical pay rate to employees who work more than 40 hours in a single week, except unless they work specific types of sales jobs and qualify for overtime exemptions. For workers that are paid on a salary basis, they earn a specific amount each week regardless of whether they have worked more or less than a standard 40-hour workweek.
- Tax Withholding:
The federal government requires you to intermittently withhold income taxes from the employees and remit them periodically. When you withhold income tax, its amount is based on the amount of money an employee earns and also the filing status he indicates on the official form given to him. It is also compulsory to withhold the amounts for social security and Medicare and make the employer be able to contribute to these funds.
- Filing Taxes:
You are required by the government to file employment tax forms periodically, and most states, follow the same rule. When you keep close track of the amounts that you pay employees and amounts you withhold from the pay stub, it makes it easier to fill out the tax form, based on your schedule, if it is weekly, monthly or quarterly.
How to do payroll accounting
- Set up payroll accounts:
Payroll accounts are inclusive of a mixture of gross wage expense, employee FICA tax payable, federal income tax payable, wages payable. Depending on the type of business you run and your employees motivation, you may then have an additional payrolling account.
- Calculate taxes and other deductions:
This helps you to know how much from the pay stub of an employee that you will need to withhold from them and how much you as the business manager will contribute. The taxes vary depending on the employee and the location of the business, before committing to pay up the taxes, it is important to brush up on state and local laws on payrolling.
- Gather payroll reports:
If you are using software, to run payrolling, you need to gather the reports and documents that will make the process a lot easier.
- Record the payroll expenses and payables:
After you get all the valid information, it is important to record everything in the books, which is also inclusive of amounts that you owe and have not paid. When you record the payroll, you debit gross wage expense and credit all the liability accounts.
- Double-check your records:
For the sake of accuracy, it is important to double-check for errors. Cross-check to find out the debits equal the credits, and if for any instance, the books are not balanced, retrace your steps and fix the error.
- Transition the accounting periods:
You have to pay the amounts that you owe the staff and the government, as you pay off what you owe, your assets begin to decrease, showing the decrease in assets, it is also important to credit the appropriate asset account, like your cash account.
Doing payroll accounting does not have to be a difficult process, although the learning can take time, but with a bit of practice you can do great, start with the very basics and move up the learning ladder, and soon you’d be a pro.
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