How to handle payroll accounting entries as an employer

Whether you're running a startup with your first hire or managing a mid-sized team across multiple states, your payroll must be accounted for correctly. This is where payroll accounting entries (also known as payroll journal entries) come in.

But what exactly are they? What do you need to do as an employer? And why are they important?

In this guide, we’ll walk you through everything you need to know about recording payroll entries in the US, including an explanation of the fundamentals, how they apply to real-world examples, and the common pitfalls you should aim to avoid. So let’s jump straight in.

What is a payroll journal entry?

A payroll journal entry is a record of all payroll-related transactions in your business's general accounting ledger. It shows how much you’ve paid your employees, what’s been withheld for taxes and benefits, and how much you owe to tax authorities or third parties (like insurance providers).

In short, it ensures your books accurately show what you have paid your employees, and what you still owe.

Payroll accounting entries typically include several important elements, such as:

Why do payroll accounting entries matter?

Recording these entries is important for a number of reasons, including:

• Compliance. Internal Revenue Service (IRS) regulations require accurate payroll tax reporting and payment.
• Financial visibility. Your books need to reflect your actual labor costs.
• Audit preparedness. Clean records make audits easier and help you avoid fines and penalties.
• Cash flow management. Payroll is typically the biggest expense for most businesses, and knowing the exact cost helps with forecasting.
  
  

Types of payroll journal entries

Payroll accounting isn’t a one-size-fits-all process. Depending on the timing of your payroll, your accounting method, and how your business handles taxes and benefits, you may need to create several types of payroll journal entries.

These can include:

1. Initial payroll journal entry

Purpose: To record wage expenses, tax liabilities, deductions, and net pay when your employees are paid.

When to use: Every time payroll is processed.

This is the most common payroll entry. It’s recorded each time you run payroll and reflects the actual cost of wages and associated taxes for that pay period. It typically includes:

• Wage expenses
• Employer-paid taxes
• Deductions
• Liabilities

Example accounts may include:

• Debit: Wages expense, Payroll tax expense
• Credit: Tax payable, Benefits payable, Salaries payable

Top tip: If you use payroll software that integrates with your accounting platform, this entry can often be auto-generated. However, you should always double-check for accuracy.

2a. Accrued payroll journal entry

Purpose: To recognize payroll costs in the correct accounting period, even if payment hasn't been made yet.

When to use: At month-end or year-end, when your employees have earned wages but haven’t yet been paid.

Accrual accounting requires expenses to be recognized in the period they are incurred, not when they are paid. If a pay period spans the end of a month or quarter, you’ll need to accrue unpaid wages and taxes to match the expense to the correct period. What is accrued payroll?

This entry typically includes:

• Estimated wages for unpaid days
• Associated taxes and benefits
• Liabilities to be reversed or settled in the next period

It’s often used in the following accounts:

• Debit: Wages expense, Employer payroll tax expense
• Credit: Accrued payroll liability, Accrued payroll taxes

Use average daily wage or actual hours worked to calculate precise accruals.

2b. Reversing entry

Purpose: To eliminate previously accrued payroll expense once actual payroll is recorded.

When to use: At the beginning of the next accounting period, after posting an accrual.

After you record an accrual entry at the end of a period, you’ll need to reverse it in the following period to avoid double-counting wages when the actual payroll is processed. This entry is commonly used in companies that close books monthly or quarterly, and is typically found in the following accounts:

• Debit: Accrued payroll liability
• Credit: Wages expense (if you use manual reversal)

It’s recommended to set up reversing entries to post automatically in your accounting software, especially if you have a recurring monthly close process.

3. Payroll tax payment entry

Purpose: To reduce payroll tax liabilities once payment has been made.

When to use: On or after the payroll tax payment date, and each time you remit taxes to federal, state, or local agencies.

Your initial payroll entry creates liabilities for federal and state payroll taxes. When you remit those taxes (e.g., via EFTPS to the IRS), you need to reduce those liability accounts and reflect the cash outflow. This entry should record:

• The clearing of previously recorded tax liabilities
• The reduction in your bank account

Example accounts include:

• Debit: Federal income tax payable, Social Security payable, Medicare payable
• Credit: Bank account / Cash

It’s advisable to always reconcile your tax payments against prior payroll entries and Form 941/944 filings, as this helps to ensure no discrepancies.

4. Benefit contribution entry

Purpose: To record the payment of employee and employer contributions to benefits providers.

When to use: When funds are transferred to 401(k), HSA, health insurance, or other benefits vendors.

Payroll deductions for things like health insurance, retirement plans, and commuter benefits are withheld from employees and must eventually be forwarded to benefit providers. As a result, this entry should record:

• The clearing of benefit liability accounts
• The reduction in your bank balance

Example accounts typically include:

• Debit: Benefits payable
• Credit: Bank account / Cash

Top tip: Always maintain documentation of contribution schedules and remittance confirmations from your benefit providers.

5. Adjusting entry

Purpose: To correct a previously incorrect payroll entry or apply retroactive changes.

When to use: When fixing errors in prior payroll entries, or when back pay, retro pay, or missed bonuses are identified.

Sometimes, you may discover a mistake or need to reflect a retroactive pay change (such as for missed hours, incorrect tax rates, or late bonus approval). This entry is designed for such instances, and includes:

• Increases or decreases to wages, taxes, and liabilities
• Adjustments to both expense and payable accounts

Example accounts for this entry might include:

• Debit or credit: Wages expense, Payroll tax expense
  
  

How to record a payroll journal entry

To illustrate the recording process more clearly, let’s walk through a basic example of a biweekly payroll journal entry for a salaried employee. In this example, deductions and contributions are as follows:

• Employee salary: $2,000
• Federal income tax withheld: $200
• Social Security withheld (6.2%): $124
• Medicare withheld (1.45%): $29
• 401(k) employee contribution: $100
• Employer Social Security match: $124
• Employer Medicare match: $29
• Employer 401(k) match: $100

When payroll is processed, the journal entry for payroll would look like this:

Once the taxes are paid, the journal entry for payroll tax payment would look like this:

How can Remote help?

Managing payroll journal entries can be time-consuming, especially when you're juggling multiple pay runs, compliance requirements, and accounting tasks.

That’s why, with each payroll run, Remote provides clear, structured payroll journal documents designed to fit seamlessly into your financial workflows. These journals — customized with your business details — help ensure you have the exact information needed to record accurate payroll entries in your accounting system. Whether you're tracking wage expenses, tax liabilities, or employee deductions, you get the visibility you need with every cycle.

For example, need to look back at a previous pay run? Remote makes it easy to access and extract gross-to-net payroll outputs for historical periods. That means no more digging through spreadsheets or guessing at prior values; everything is right there, ready when you need it.

And because Remote’s payroll journals are exportable, you can efficiently transfer payroll data into your accounting software, helping you reduce manual errors and stay aligned with your general ledger.

To learn more about how Remote Payroll can save you time, resources, and compliance headaches, speak to one of our friendly experts today.