Payroll Accounting: Everything You Need to Know

Payroll accounting involves the calculation and distribution of salaries, wages, and withholdings to certain agencies and company staff. It also involves issuing reports to company management, so they’re informed regarding company labor cost and payroll expenses.

Also Read: Top 10 Benefits of Outsourcing Accounting and Payroll Services

The primary kinds of journal entries for payroll are as follows:

  • Initial recordation – this is the primary journal entry for payroll. The entry records gross wages that are earned by each employee, including withholdings every pay period, as well as other mandatory or voluntary deductions.
  • Accrued wages – accrued wages entry may be recorded at every accounting period. It’s intended to record wages owed to each employee but is not paid yet. The entry will then be reversed in the next accounting period so initial recordation entry may take its place. The entry may be unnecessary if the amount owed to the employee is immaterial.
  • Manual payments – manual paychecks may be given to employees either for employment terminations or pay adjustments.

We’ll take a more in-depth look at the key journal entries types for payroll below.

  • Primary journal entry

A primary journal entry for payroll may be recorded in the general ledger or payroll journal. The entry may include debits for salaries and direct labor expense.  There may also be credits to accounts with each one giving full details of liabilities that haven’t been paid and the amount that has already been paid to all employees as net pay.

There may be different employee deductions that are included in this particular payroll journal entry such as repayment for advances, pension plans, life insurance, and vision insurance.

  • Accrued journal entry

It’s quite common for companies to have unpaid wages by the end of each accounting period. This expense must be accrued if it’s material. This payroll entry is simpler compared to the comprehensive primary entry as it’ll be a single expense. Once the entry is recorded, it can be reversed at the start of the next accounting period. It is then recorded as an actual payroll expense.

  • Manual paycheck entry

It’s quite common for a business to print manual paychecks as either employees were short=paid in a preceding payroll or the company fired or laid-off employees. The business is obligated in paying the employees prior to the next scheduled payroll. The check can be settled through the accounts payable account of the company rather than the payroll account. If so, then there is a need to make an entry through the corporate accounts payable. If you’re recording it into the payroll journal or general ledger directly, then the same items may be used in noting primary journal entry.

Payroll Accountant Duties

Oftentimes, businesses in UAE outsource payroll accounting to a specialized firm. A firm specializing in company payroll processing can perform critical HR functions such as payroll management for a lower cost compared to processing payroll inhouse.

There are a couple of major job functions payroll service providers perform throughout an entire year, and that includes:

  • Computing gross pay;
  • Computing total amount deducted to gross pay;
  • Calculating the amount due to every employee;
  • Authorization of the payments due to company staff;
  • Distributing payroll as soon as it’s been authorized’
  • Issuing reports to company management regarding labor costs

Outsourcing Payroll Accounting in UAE

Outsourcing payroll is a way for businesses owners to think ahead. Payroll-related tasks are complicated and they become quickly overwhelming for entrepreneurs to handle on their own, especially without the required skills and expertise. Fortunately, payroll service providers offer capabilities that are beyond what an organization is able to do inhouse. By outsourcing payroll processing, you will have peace of mind, as well as more time in developing and growing your business. This ultimately saves you money and reduces risks of acquiring fines and penalties for improper payroll recording and late payments to employees.

If you’re ready to talk about payroll processing, call us today as we can answer all your payroll-related concerns.

Why should a business outsource a payroll?

Outsourcing payroll allows an employer to concentrate fully on core business activities. Additionally, it frees up the entrepreneur or accounting personnel in order to focus on working on more strategic tasks that affect the bottom line of the business.

What does outsourcing payroll mean?

Payroll outsourcing is the shifting of the responsibility of processing payroll and disbursing wages of employees to a specialized team dedicated for payroll. This is typically done in order to save costs and time that are associated to having a team of experts back the company for a crucial task such as payroll management.

You may also read: Payroll Processing: What Happens During the Payroll Process?

Is payroll processing an HR or accounting function?

Payroll functions are handled by human resource and finance departments in most businesses. Payroll is driven by numbers and calls for expertise between accounting and labor legislation. Payroll is also an HR function as it’s dealing with people.