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What is payroll in accounting? How to make it easier?

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what is payroll in accounting
what is payroll in accounting

What is payroll in accounting? It’s like zooming in on all the money related to paying employees. We’re talking not only about salaries but also about perks and taxes related to payroll. It helps you see how much each employee costs you, which is like the secret sauce for growing your business smartly. No matter what field you’re in, using top-notch accounting software and top-of-the-line payroll services can boost your grasp of payroll accounting and how it affects your overall earnings.

What is payroll in accounting?

Before we discuss “What is payroll in accounting?”, we should first grasp the meaning of payroll. Payroll is all about how employers pay their workers for the jobs they’ve done. Every business with employees needs to handle payroll to ensure everyone gets paid correctly and on time. 

Payroll meaning in accounting involves figuring out how much each worker earns, collecting the proper taxes and deductions, and then giving them their paycheck. The business must also keep detailed records of all these payments and follow many rules and laws. 

Some companies manage payroll themselves through their accounting or HR departments, while others hire an outside company to do so.

Payroll accounting entries

After knowing “What is payroll in accounting?”, it’s time to understand its entries. Payroll accounting covers a scope of work. It deals with many financial transactions that must be recorded, filed, and paid out. Here are some financial elements you should include in your payroll accounting:

1. Salaries

Your accountant needs to keep track of all the money your employees earn during the year. This includes their regular pay, extra wages, overtime, and commissions.

2. Benefits

Furthermore, your accountant should document all the extra perks your company offers its staff. These perks cover health insurance, dental plans, worker’s compensation, retirement benefits, and paid time off for sickness or vacation. Additionally, they must handle the deductions for employees’ share of insurance premiums and retirement contributions.

3. Taxes

Lastly, based on the information employees provide on their W-4 forms, your accountant must deduct their taxes. They should also record what the company pays for income taxes, social security and Medicare.

payroll meaning in accountin

Types of payroll accounting entries

Before paying employees or handling taxes, ensure your accountant records every financial transaction correctly. Now, let’s look at the different kinds of payroll accounting entries your business might need:

Initial recording

This is the usual way to enter payroll information. It records what you pay employees and their taxes.

Accrued wages

It’s recorded at the end of an accounting period, every three months, or once a year. The timing depends on your company’s size and how quickly you need to provide financial updates to the stakeholders.

Manual payments

Sometimes, you might pay your employees by hand, like when you send a check to their home. After such a payment, your accountant must update the payroll details to reflect this manual transaction.

Payroll Expenses vs. Payroll Liabilities

Along with knowing “What is payroll in accounting?”, you should know the essential-related accounting terms. People often mix up payroll liabilities and payroll expenses. Payroll liabilities relate to costs for hiring and keeping workers. Conversely, payroll expenses cover all the fees in your everyday payroll tasks. To clarify, consider some examples:

Payroll liabilities include:

  • Employee compensation such as salaries, wages, overtime pay, and commission.
  • Taxes and insurance such as health insurance and worker’s compensation.

Payroll expenses include:

  • Investing in accounting software.
  • Outsourcing to a professional accountant.

How does accounting software help with payroll?

Accounting software is essential for small businesses. It helps with managing employee payroll, which can be a bit tricky sometimes. With the right software, you can do a lot of stuff. For example, you can pay each employee separately, and you can set it up so payments go out automatically. 

With accounting software, you can also determine how much your employees cost you by tracking expenses and running detailed reports. Here are some advantages and uses of payroll accounting software:

Automate payments for efficiency

To handle payments efficiently, you can set up automatic payments with suitable software. This means you don’t have to rely on a separate payroll system. Some software already has payroll features built-in, while others need to connect with other programs. By automating payments, you save time and resources that you can use for other essential tasks.

Track payments with precision

With automatic payments, you can easily track each payment to every employee. This breakdown helps in better monitoring and management.

Utilize detailed accounting reports

Detailed accounting reports are necessary for monitoring finances. You can gather payment records for a specific pay period or over time. These reports also help you understand how payroll expenses change with shifts in your workforce.

Integrate with other systems for seamless operations

Integration with other systems is essential for seamless operations. Accounting software can sync with various financial programs, streamlining your processes. Additionally, most software allows you to export records for further analysis in spreadsheet software.

Flexibility in payment management

The ability to start, stop, or modify payments is valuable. You can adjust payments as employees come and go, their compensation changes, or when tax regulations shift. This flexibility ensures accurate and timely payments for your team.

payroll accounting

Best accounting software for efficient payroll accounting


Generating a payroll activity summary in Xero is easy. Choose a date and an employee/ group of employees. Then, you’ll quickly receive a clear report with well-organized data.


When you use FreshBooks, you can easily download a CSV file containing all your payroll information for a specific period. The reports cover overtime hours, taxes, net pay, and employer costs.


ZarMoney offers payroll tax reports and more inventory management features than most accounting platforms. This makes it equally beneficial for payroll accounting and overall business reporting.

Wave Financial:

Using Wave Financial, you can generate payroll wage and tax reports for the current quarter, past quarters, or any other period you need. Additionally, a separate report for benefits and deductions lets you track spending beyond salaries.

What is payroll in accounting? Payroll accounting is super essential for businesses. It involves keeping track of their pay, benefits, and taxes. Plus, it helps you manage your money flow and keep your finances in good shape.

What is payroll in accounting – FAQs

What is payroll in accounting?

Payroll meaning in accounting is all about figuring out how much employees should get paid and ensuring they get it on time. It involves many tasks, like calculating how much they’ve earned, what deductions must be made, and how much tax must be taken out.

Why is payroll important in accounting?

Payroll matters a lot in accounting for many reasons. 

  • First, it ensures that employees get paid the right amount for their work. 
  • Plus, it helps a company follow all the rules about taxes and laws. 
  • It also helps plan finances and keep employees happy, so they stick around.
How can businesses make payroll easier?

Businesses can make payroll easier by using special software or getting another accounting company to handle it.

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