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Payroll Accounts

Kim Hall's Profile

Hi there! A client is implementing a new payroll system.  Yea!  And it is happening Tuesday! (May 28)  It has been years since I implemented a payroll system, and I could use a  refresher on configuing the accounts.

So the questions are:

1) what is the optimal payroll account set up for financial reporting? 

2) And other than dividing taxes for COGS, is there a need to break down payroll taxes by Payee?

At the moment, here is the proposal

Owner Payroll

Officer Payroll

Exempt Payroll - Administrative

Hourly Payroll -  Administrative

Exempt Payroll - Cost of Goods Sold/COGS

Hourly Payroll - COGS

Payroll Taxes - COGS

Payroll Taxes - Non-COGS

Thanks for your time and help!!! 


Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

Don't forget to book taxes, both employer and employee.

Otherwise, if the salary expense works for you then it works.

Secondary is the ability to tie in your 941 and state reports to your COA.

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

Just to add, you didn't clearly delineate whether you were a manufacturer or not. In a manufacturer, salaries (direct labor to manufacture + overhead application) are part of the COGS, otherwise they are not part of COGS.

Kim Hall
Title: Consultant
Company: HWG, Inc.
(Consultant, HWG, Inc.) |

Thanks for your feedback!

Actually agreeing the 941 to the g/l was one of my questions. What is the down side of maintaining that information in Payroll system? For example if I have 1 account for payroll taxes, I could combine state and federal. The payroll company will be filing the reports and they will track it soooo. . . does it really need to be in different g/l accounts?

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

To answer your question. No, it doesn't (especially when the taxes are in and out (Fed w/h, State w/h) etc). I would however book them as separate line entries in the same account so you can audit that account.

Title: Chief Financial Officer
Company: Pro Tech International
(Chief Financial Officer, Pro Tech International) |

You may have too many accounts, resulting in clutter of your Chart of Accounts. If the company is small, I would recommend you break your overhead wage accounts into two categories: "Directors and Officers" (including owners), and "Salaries". Naturally, if you have direct cost labor that belongs in COGS, then include it there. Employer payroll taxes do not need a bunch of accounts either. You could probably get away with a single "Payroll Taxes" expense account. Don't forget the liability accounts as well, but once again, keep that simple. Your detailed reports should tell you how much goes to local/state/federal agencies.

The only time I would consider multiple wage accounts is if your company is large enough to have a need to break your reporting down by department. Even then, hopefully, you have a software package that allows you to assign individual expense accounts to multiple departments so they can roll up into a consolidated report while still giving you your departmental reports.

Remember the role of financial reports is to give the reader useful information. If your stakeholders really need to know the breakdown of hourly versus salaried and state versus federal employer taxes, then give them that information. I have found that is not always the case for smaller businesses. Simplicity generally rules the day for me.

Didier Jupillat
Title: Director / CFO Advisory
Company: Graphite Financial
(Director / CFO Advisory, Graphite Financial) |

I agree with Daniel: simpler is always better, within the limits of the minimum information your stakeholders want to see in your reports.
In our case, we want to see net payroll vs. taxes vs. benefits (very useful to project total cost per employee), and we want to see bonuses and sales commissions separately, so we're using five accounts.
But if I were not analyzing payroll details by department in a separate spreadsheet, as I use payroll percentages to capitalize/allocate some of our expenses, including some of that payroll too, I would probably want more payroll accounts in the chart!... And if I were using Activity Based Costing, I would need even more details!
So I'd say it's really based on what you want to achieve with reporting and allocations.

Topic Expert
Lee Andrews
Title: P/T CFO, Business Consultant
Company: Pacific Bag, Inc./Other Clients
(P/T CFO, Business Consultant, Pacific Bag, Inc./Other Clients) |

I'll answer by giving a current example to see if this helps. Sales and distribution company with a small amount of manufacturing. Big warehouse. Payroll hits the GL via the following categories:

INCOME STATEMENT (also all budgeted under these bucket lines):
Exec and Admin -- salaries
Exec and Admin -- bonuses
Temp costs -- Admin and/or Mfg
Sales -- salaries
Sales -- bonuses
Sales -- commissions
Direct Mfg -- salaries
Direct Mfg -- bonuses
Warehouse/Semi -- salaries
Warehouse/Semi -- bonuses

Usual clearing accounts -- FICA, 401k, L&I, medical, etc.(about 6 accounts)
Vacation accrual account
Bonus accrual (annual)
Commission accrual (annual)
Rolling payroll general timing accrual (pay every 2 weeks)

So about 20 GL accounts are posted from the payroll -- would not want more, and cannot reconcile things easily with less.

The four main employee income statement groups all carry their own portion of company FICA, company medical overhead, etc. just in the salary bucket. As for financial reporting, the income statement lines collapse into the four groups as single numbers, and are only broken out when budget variations or other questions arise.


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