What Is Payroll Expense?

money makes money image by Andrey Andreev from Fotolia.com

A payroll expense is a business expense associated with paying employees, such as a wage or salary. Payroll expense is synonymous with the terms salary expense and wage expense.

Payroll Expense

When an employer pays an employee for the employee’s work -- usually through a salary or an hourly wage, as well as fringe benefits -- the payment is a payroll expense (money that the employer spent to pay costs associated with the payroll).

Other Kinds of Payroll Costs

Any compensation given to a worker should be listed as a payroll expense. While the most common payroll expenses are regular wages and salaries, any other kind of compensation should be listed as well. Other costs include fringe benefits like health insurance, bonuses, stock options, commissions and any other money spent on employees.

Payroll Tax Expense

In addition to paying workers’ wages or salaries, employers are required to pay tax for each employee. Hence, most employers' accounts include entries for payroll expenses, which are separated into wages, salaries and associated tax. Tax is usually broken down into relevant federal, state and local taxes.

Accounting

When an employer keeps records of expenses and profits, every cost is entered as a debit and every sale is entered as a credit. Most businesspeople further divide credits and debits into categories, and payroll (money spent on employees) is one of these categories.

References

About the Author

Calla Hummel is a doctoral student studying contraband in international political economy. She supplements her student stipend by writing about personal finance and working as a consultant, as well as hoping that her investments will pan out.

Photo Credits

  • money makes money image by Andrey Andreev from Fotolia.com