What is payroll accounting?

Definition of Payroll Accounting

Payroll accounting involves a company's recording of its employees' compensation including:

  • gross wages, salaries, bonuses, commissions, and so on that have been earned by its employees
  • withholding of payroll taxes such as federal income taxes, Social Security taxes, Medicare taxes, state income taxes (if applicable)
  • withholding for the employees' portion of health insurance premiums, employees' contributions to savings plans, garnishments of salaries and wages, employees' contributions to United Way, etc.
  • employer's portion/expense for Social Security taxes, Medicare taxes, state and federal unemployment taxes
  • employer's portion/expense of fringe benefits such as health and dental insurance, paid holidays, vacations and sick days, pension and savings plan contributions, worker compensation insurance, etc.

Example of Payroll Accounting

If a company's employees are paid weekly based on hours worked, the payroll processing is likely done during the first few days following the work week. If the company's accounting periods are calendar months (and the calendar year), the company will have to accrue for the wages and benefits earned by the hourly paid employees (which are not yet paid or recorded in the general ledger accounts) as of the last day of each month.

You can see more details including journal entries at our free Explanation of Payroll Accounting.