Debitoor's accounting dictionary

Payroll - What is payroll?

Payroll is the money a business spends paying its employees.

Debitoor invoicing software makes it easier to manage payroll by helping you track expenses such as salaries and wages.

Payroll covers all of the expenses that occur when employing people, including salaries and wages, bonuses, benefits, and commission.

The amount of money a company spends on payroll often varies from one accounting period to another because of factors such as employees' leave, sick pay, and overtime.

Payroll might also refer to:

  • A company’s list of its employees
  • Records of employees' salaries and wages
  • A department within a business that is responsible for calculating and managing employees' pay.

Payroll and accounting

In accounting, payroll is considered an expense. Because payroll often makes up a big percentage of a company's expenditure, it is important to keep track of how much you spend on your staff. This is done through payroll accounting.

For large organisations, it is common to have an entire department dedicated to managing payroll or to outsource payroll accounting duties. On the other hand, small business owners are often responsible for managing their own payroll.

If you're a small business owner that manages payroll accounting, you will be responsible for:

  • Recording how much employees work. For employees on a salary, this starts with a fixed amount which may then be adjusted for leave, overtime, etc. For hourly employees, you will need a system for tracking the hours each employee works to calculate their wages.
  • Calculating and paying each employee's total monthly salary or wages. This also applies to any contractors you employ.
  • Calculating and paying employee benefits or company pension contributions.
  • Making deductions from employees' monthly pay. This might include taxes, employee pension contributions, or student loan payments.
  • Producing payslips that outline employees' total pay, total tax deductions, total hours worked, etc.

Payroll and tax

If you manage your company's payroll, you will be responsibile for a number of different taxes, including National Insurance and Income Tax.

As an employer, you are responsible for calculating taxes on your employees' behalf, as well as deducting these taxes from employees' pay. This is usually done through the PAYE system. If you are self-employed, you will also need to calculate and pay your own Income Tax through Self Assessment.

Debitoor and payroll

Debitoor invoicing software makes it easier to manage your company's payroll. When you enter an expense, you have the option to mark it under the 'Wages and Salaries' category. You can then choose from a number of different sub-categories, including 'Employee Salary Taxes', 'Medical Expenses and Sick Leave', or 'Social Security'. You can then create financial reports that tell you how much you've spent on staff over the last month, quarter, or year.

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