A payroll journal entry is the accounting entry that records a company's payroll in its general ledger. It captures gross wages, employee deductions, employer payroll taxes, and the net cash paid to employees — all as a single balanced double-entry accounting transaction.
Why payroll journal entries are necessary
Payroll affects multiple accounts simultaneously. When you run payroll, you incur a wage expense, create several liabilities (withholdings owed to tax authorities, premiums owed to benefits providers), and reduce your cash when employees are paid. A journal entry captures all of these effects in a single, auditable record.
Components of a payroll journal entry
Debits (expenses and assets reduced)
- Wages Expense: Total gross wages for the pay period
- Payroll Tax Expense: Employer's share of FICA (Social Security 6.2% + Medicare 1.45%), FUTA, and SUTA
Credits (liabilities created)
- Federal Withholding Payable: Employee federal income tax withheld
- FICA Withholding Payable: Employee Social Security and Medicare withheld
- State Withholding Payable: Employee state income tax withheld
- Benefits Payables: Health insurance premiums, 401(k) contributions withheld
- Net Wages Payable: Net pay deposited to employees' bank accounts
Payroll journal entry example
For a $15,000 gross payroll (all employees, one pay period):
| Account | Debit | Credit |
|---|---|---|
| Wages Expense | $15,000.00 | |
| Payroll Tax Expense | $1,729.50 | |
| Federal WH Payable | $2,250.00 | |
| SS WH Payable | $930.00 | |
| Medicare WH Payable | $217.50 | |
| State WH Payable | $510.00 | |
| Health Insurance Payable | $675.00 | |
| 401(k) Payable | $750.00 | |
| FICA Payable (Employer) | $1,147.50 | |
| FUTA Payable | $90.00 | |
| SUTA Payable | $492.00 | |
| Net Wages Payable | $9,667.00 | |
| Total | $16,729.50 | $16,729.50 |
Two entries: the payroll entry and the payment entry
There are actually two journal entries for every payroll cycle:
- The payroll entry (above): Records the expense and creates the liabilities
- The payment entry: When net pay is disbursed (debit Net Wages Payable, credit Cash/Bank) and when tax payments are remitted (debit each payable, credit Cash)
PostBooks generates the payroll entry from your payroll provider's report. The payment entry is usually handled automatically by your payroll provider's ACH process.