Payroll Accounting: All You Need to Know
In essence, payroll accounting helps businesses manage what they owe employees and how it impacts their cash flow. Payroll accounting also focuses on all business expenses associated with their employees. Payroll accounting can also help ensure your business avoids overextending and can expand strategically.
Payroll accounting is an often overlooked but important part of a business. As the name suggests, its focus is primarily on payroll. In other words, it covers everything that has to do with employee salaries and wages as well employee benefit costs. It also computes the taxes the business owner owes.
The Importance of Payroll Accounting
Payroll accounting is the process of tracking business expenses related to payroll. This includes individual employee compensation as well as taxes, employer portions of federal benefit withholdings and deductions for other reasons that may need attention in your company’s books like paying bonuses or vacation time off (VTO).
Payroll accounting systems ensure that you not only keep careful track of your payroll expenses, but also comply with local and state employment laws. These rules will help make sure the company doesn’t run afoul tax requirements as well.
The payroll accounting system is the backbone to understanding your company’s profitability. Without it, you can’t get an accurate view of how much money has gone in and out for each employee hired or fired so that when making decisions about hiring full-time employees versus contractors/hourly workers, there are no surprises along the way.
Payroll accounting is very different from other types of accounting, such as financial and managerial. Like the latter it involves recording transactions but with an employee focus instead; there’s no need to do any complex analysis in this field because all you have are basic numbers waiting for your attention.
Payroll accounting doesn’t include the payments that employees receive from their employer for benefits such as health insurance. These are discretionary and come directly out of an employee’s paycheck, but payroll processing systems automatically deduct these amounts when they’re due without any input or action.
Payroll accounting doesn’t include rent, utilities, office supplies or any other expenses that are unrelated to employee compensation. Sales taxes on top of FICA payments can also be excluded from payroll records if they don’t relate back into business operations like tax preparation services.
How Payroll Accounting Software Can Help With Payroll
Accounting software is a critical tool for small businesses, and it can be especially helpful when administering payroll. With the right accounting system in place you will be able to process individual payments as well as set up automatic ones or integrate with third party providers.
Below are other important tasks you can accomplish with an accounting software:
- You have the option to program automatic payments. One of the best things about paying bills is that it can be done automatically. With some software, you’ll never have to worry about forgetting an important payment or date again.
- You have the option to break down payments. You can break each payment received by a particular employee into different categories, which will help you track the progress of their work and make sure that everything is going according to what they’re paid for.
- You can create detailed reports. You can compile payment records for a single pay run or over a certain time period, and track changes in your payroll expenses as the size of workforce changes over time with this easy-to-use software.
- You can integrate it with other software. Accounting software is a powerful tool that can help you track every financial transaction in your business. You may be able to integrate it with other systems, like bookkeeping or invoicing and even export data for reviewing on spreadsheet programs such as Excel.