by For example, a business with dozens of W-2 employees requires different accounting entries than a company that only uses independent contractors or businesses that use a mix of both. Since the payroll software automates employee payroll processing, it results in accurate salary disbursals every pay cycle. Payroll processing of employees is a major aspect of employee management in an organization since salary is one of the key factors that motivates them to keep working for their company. In any organization, the salaries of the employees are processed each salary cycle to ensure that the staff members are compensated adequately for their time and effort.
- The payroll accountant is responsible for having a clean ledger when upper-level management looks at the chart of accounts.
- Then employees receive their paychecks for that pay period on January 17.
- It also means that your team doesn’t have to reenter information across systems when an employee gets promoted or moves to a different city to work remotely.
- Though some systems that incorporate more or less automation may not include all of these steps, the following process flow will apply to most payroll systems.
- Recording this correctly helps ensure that employees get paid correctly and that your payroll expenses align with other company financial records.
➔ Develop a Chart of Accounts
- Have new employees fill out payroll-specific information as part of the hiring process, such as the W-4 form and medical insurance forms that may require payroll deductions.
- For example, workers’ compensation is recognized as an expense once the period that the premium covers has elapsed.
- Even if you’ve paid all taxes due, keep a record of local, state and federal taxes paid.
- The easiest way to handle all of this is to use online payroll accounting systems that offer payroll services.
- Payroll accounting is an essential component of employee management as it helps organizations maintain accurate compliance-friendly records of their employee payroll.
- Founded in Australia, Xero has a significant presence in the UK and the US.
This step may be addressed automatically by your payroll software. Have new employees fill out payroll-specific information as part of the hiring process, such as the W-4 form and medical insurance forms that may require payroll deductions. Set aside copies of this information in order to include it in the next payroll. Being cloud-based systems, modern payroll software also supports enhanced scalability and flexibility. These systems can scale according to the company’s growth, enabling you to keep on adding employees as and when required. Similarly, you can make changes to the system as per your requirement, adding and removing modules depending on the company’s requirements.
Why Is Payroll Accounting Important?
The first thing you’re going to want to do is to sort all of the primary items needed for your payroll accounting. These include wages, benefits, and periods of payment for each employee. One of the best things you can do when setting up payroll accounting is to know exactly what you need.
Types of payroll accounting entries
- Recording payroll consistently, whether that means weekly, monthly, or per pay period, keeps your records up to date and reduces the likelihood of discrepancies.
- The payroll accounting process is complex with numerous steps required to undertake it completely.
- Once your JEs are posted on the GL, you’ll have to reconcile the amounts.
- To calculate the salaries, you will need to consider their gross salary as it will include income taxes, professional tax, net salary, added benefits, overtime, latecomings, leaves, etc.
It differs from the initial recording as the amounts included within it are yet to be paid to the employee. For example, arrears would be included in accrued wages initially, and once it is paid to the employee, it will be included within initial recordings. These deductions are always in line with the applicable legal laws. For example, the deductions under the US laws are federal withholdings, FICA, state withholdings, employee health insurance costs, 401K, and disability Payroll Accounting taxes of state. Several withholdings and deductions are taken out of an employee’s gross pay.
Your payroll software should be easy to use so you can make changes and train others to use the system. Each request for a direct deposit creates an ACH credit to register the transfer of funds from the employer’s business bank account to the employee’s checking account. We collaborate with business-to-business vendors, connecting them with potential buyers. In some cases, we earn commissions when sales are made through our referrals. These financial relationships support our content but do not dictate our recommendations. Our editorial team independently evaluates products based on thousands of hours of research.
Defining payroll liabilities
Our full-service payroll software can support your business in everything from payroll liabilities and tax management to greater payroll automation. This process can be time-consuming, but with good payroll software you can automate these steps and make calculating your payroll tax liability as easy as clicking a button. Accurate payroll records are essential for tax reporting and audits. A detailed payroll ledger puts all the information that you or the IRS might ever need at your fingertips. The final step for payroll accounting is to begin the transition of closing out your books. Do this at the end of each accounting period and you are going to zero all of your accounts.