For an employer, running payroll involves the issuing of checks & direct deposits, the handling of payroll deductions/contributions, and the tracking of expenses. While it can be a frustrating and time-consuming task, payroll is extremely important. Companies that fall behind on their payroll end up facing serious problems, potentially even legal sanctions.
Accounting is the process of recording transactions and financial information. There is a specialized type of accounting known as payroll accounting—it is a process that is designed to ensure that payroll is actually done properly. Here, our payroll service providers explain the basics of payroll accounting.
Payroll Accounting: An Overview
Payroll is complicated. Even for small businesses with three, five, ten, or twenty-five employees, it is easy to get tied up in payroll. Careful accounting makes sure that the numbers actually add up in the end. When done properly, payroll is about far more than just writing down how much each employee gets paid. Here are five basic things that should be included in every employer’s payroll accounting:
- Gross Pay: Your payroll accountant should record exactly how much each employee earns. Among other things, this includes hourly wages, salaried earnings, bonus payments, and commissions. There should be a clear record of exactly how much an employee earned and when that pay was earned.
- Tax Withholdings: Employees are responsible for paying payroll taxes. For the most part, these employee-side payroll taxes are withheld directly from a worker’s paycheck. Under the Federal Insurance Contributions Act (FICA), taxes may be withheld for Social Security and Medicare. There may also be withholding for state income taxes.
- Employee Benefit Withholdings: Beyond tax withholding, a payroll should also include a clear record of the employee’s portion of withholdings for their own benefit plans. Among other types of contributions, a worker may have funds withheld for health insurance and retirement plans. Some employees may also have wages garnished to pay outstanding debts.
- Employer Tax Contributions: Employers are responsible for covering their share of federal payroll taxes as well, including Social Security, Medicare, and unemployment insurance. Employer contributions should be clearly recorded.
- Employer Benefit Contributions: Finally, all employer contributions to employee benefits should be documented. An employer may cover part of a worker’s health insurance costs, IRA/401(k) benefits, paid holidays, or more.
The importance of accurate payroll accounting cannot be overstated. If you have employees, it is imperative that their gross pay, their tax withholdings, their benefits withholdings, your company’s payroll tax contributions, and your company’s benefit contributions are all carefully and accurately recorded. All the numbers must add up. You do not want to lose track of expenses.
Get Help From a Top Payroll Accountant in Atlanta or New Orleans
At Williams Accounting & Consulting, we are committed to providing reliable, personalized payroll accounting services to our clients. Contact us today to learn more about what our business and accounting team can do for you. From our offices in Atlanta and New Orleans, we provide payroll accounting services to businesses, entrepreneurs, and professionals throughout the entire region.
