What is Payroll Accounting? Definition, Types & Benefits

Payroll is an integral part of every organization, as it is something that every employee looks forward to and is also the biggest motivating factor. It’s an element that needs to be taken care of with utmost care and precision. Processing an error-free payroll is the key to keeping your employees happy and boosting the productivity of the organization.

A streamlined and well-integrated payroll accounting system is essential for any organization to ensure that all employees are paid on time and accurately. Payroll accounting involves everything from benefits to taxes and compensation.

What is Payroll Accounting?

Payroll Accounting is a process of maintaining, analysing, and verifying the financial records of an organization. It encompasses payroll functions such as calculating salaries, management of benefits and compensation withholding taxes and deductions.

What are the Types of Payroll Expenses

Various types of expenses fall under payroll accounting. They are-

• Employee compensation- Salaries, commissions, and tips.
• Payroll taxes- Taxes paid on employee wages with adherence to federal and state regulations.
• FICA taxes- Employer’s part covering Medicare, and Social Security payments for employees.
• Employee benefits- Health insurance premiums and other benefits.
• Additional perks- Childcare, education support services etc.

Payroll accounting does not include elements that are not related to employee compensation and benefits such as rent, utilities, office supplies, or other expenses.

What are the Types of Payroll Accounting Entries

An accurate financial recording is extremely crucial to maintain an error-free payroll process. Before any kind of transaction can happen, your accountant should ensure that all the transactions are recorded.

Some of the payroll accounting entries you should consider for your business are-

• Basic recording- This is the standard payroll method, which includes only the employee salaries and taxes.
• Accrued wages- This type of entry occurs at the end of the financial period/accounting period, which could be quarterly or yearly, depending on factors such as the size of your business, the urgency of the financial review for your stakeholders etc.
• Traditional Payments- Payments are sent to employees manually. Ex- Mailing a check to your employee’s mentioned address. In this method, the accountant will have to make changes to the record due to the manual transaction.

Payroll liabilities vs Payroll Expenses

Let us first understand these terminologies clearly. People, even professionals often get confused with the difference and tend to interchange them.

Payroll liabilities include the costs you incur for hiring or employing workers in your organization, while payroll expenses encompass all the costs involved in day-to-day payroll operations.

Take a look at the examples below to help you understand what exactly is included in payroll liabilities and payroll expenses-

Payroll liabilities comprise of-

• Employee compensation- salaries, extra pay, bonuses, and commissions.
• Taxes- Federal and state income taxes etc., health insurance, workers’ compensation etc.

Payroll expenses comprise of-

• Cost of Investing in an accounting software
• Cost of involving a professional accountant

Why is Payroll Accounting Important?

Payroll accounting is needed to keep track of your financial records and business expenses related to payroll, whether it’s employer benefits payments, other deductions, or federal taxes withholdings. It not only helps keep track of your payroll expenses but also helps you maintain 100% compliance with federal employment laws.

Payroll accounting is typically necessary for you to have an overall understanding of how much your employee’s cost. It gives you an understanding of the incremental cost of every employee you hire, helping you make an informed decision on whether you need to hire full-time employees, part-time employees, or contractors to add to your workforce.

Payroll accounting focuses exclusively on employee-related expenses. And unlike managerial accounting, it doesn’t require complex analysis to base important payroll-related decisions.

How to Set up Payroll Accounting?

Payroll processing can be a complicated affair. It’s important to set up a payroll accounting process clearly to get a picture of employee expenses and steer clear of non-compliance with tax and labour laws.

The steps to set up a payroll accounting system are as follows:

1. Setting up an accounting software

An accounting system or software is vital to keep track of your payments as it is impractical to do it manually. Payroll accounting software can help streamline your payments.

2. Create separate accounts for different types of expenses

You need to set up accounts for every expense that is part of your payroll, like compensation, bonuses, benefits, 401(k), payroll taxes etc.

3. Set up recurring payments

Once the accounting software is set up and the data is fed into it, you can program the software to issue payments regularly as per your system of payment, weekly, bi-weekly, or monthly. But no longer than a monthly basis.

4. Break up your payments

Categorize your payment portions into various categories for every expense that you cover. Ex- Medicare expense etc

5. Payment processing

With the processing of regular payments to your employees, you can track all your business’s payments through the payroll accounting program.

6. Check regularly

Although you have a payroll software in place that automates payments to your employees periodically as required, you need to check if the payments are being routinely and are accurate.

How can Alp Payroll Software Help You?

Alp Consulting is one of the best payroll software providers in the Country. We understand the qualms of businesses whether big or small. With that in mind, we have designed Software that is affordable and can help automate your organization’s entire payroll process and allow time for your team to grow your business.

Some of the tasks you can get done through Alp’s payroll accounting software-

1. Automate payments- Once you set up regular payments and update it, the process is automated for every recurring payment that has to be made thereon.
2. Breakdown payments- Payments being made to every employee can be broken down into appropriate categories.
3. Creation of accounting reports- You can compile your payment records for a certain time period and track changes in your employee payroll expenses as and when the size of your workforce changes,
4. Integration with other systems- Our HRMS payroll software can integrate with other financial programs and records and can export records to files for your reviewing convenience.
5. Alter payments- You can alter payments as and when employees leave or join your organization or if they move and there is a difference in their taxes that need to be applied to their paychecks or if there change in tax rates.

Benefits of using Alp’s Payroll Accounting Software are:

Reduces processing time

Reduce processing time and eliminate errors by automating your payroll using our payroll accounting software. Allow yourself time to focus on other key areas.

Error-free payments

Our payroll software will greatly reduce the possibility of human error, whether it is inaccurate data input or accidental deletion of formulas.

Data security

Our payroll solutions will help secure your data eliminating data loss, protecting all employee payroll data by giving you access like password protection etc.

Cost-efficiency

Our payroll software is affordable and does not burn your pockets. It comes with a payroll module that provides cost-effective solutions for managing payroll for businesses of any size.

Compliance management

Our payroll accounting software will keep you updated regarding any changes in tax rules and regulations as well as tax filing laws and allow you to easily calculate any tax rate changes.

Employee monitoring

When you are equipped with an employee calendar you can easily monitor leaves, and overtime with a click of a button and get a picture of employees present and the hours they have worked.

Reliability

Our software is extremely reliable and gets the work done with minimum monitoring. An error-free timely payment is definite with our payroll management software.

Conclusion

Payroll accounting is crucial for the growth of a business. Whether you run a payroll in-house or you outsource it to a third-party payroll service provider, ensure that your payroll operations are integrated with your accounting software. Not only does this give you a clearer picture of employee costs but can help you better plan for a better and more organized expansion of your business as it helps you determine when to bring in new hires. As business owners you need to keep tabs on every penny that comes in or goes out, especially your employees.

If you are looking for a payroll solution for your organization then look no further. Alp Consulting can provide you with payroll software that can streamline your business and boost your productivity. Hit us up to resolve your payroll challenges.

Frequently Asked Questions

1. What is payroll accounting software?

Payroll accounting software is a cloud-based solution that maintains and automates payments to employees. Alp has a robust, integrated, payroll software that can help organizations maintain compliance with tax laws and other financial regulations, as well as reduce costs.

2. What are the types of payroll accounting?

There are three types of payroll accounting which help explain payroll accounting clearly. They are-

• Initial recording
• Accrued wages
• Manual payments