Debitoor Dictionary

Accounting terms explained in a simple way

Over 150 Articles for Founders and Entrepreneurs

  1. PAYE
  2. National Insurance
  3. Tax accounting
  4. VAT

Payroll - What is payroll?

Payroll is the amount a business spends paying its workers and employees for a set period of time.

Debitoor invoicing software helps you track expenses such as salaries and wages, making payroll as quick and easy as possible.

Payroll can vary from one accounting period to another, depending on factors such as employees' leave, sick pay, and overtime.

Payroll might also refer to:

  • A company’s list of its employees;
  • Records of employee’s salaries and wages, including bonuses and withheld taxes; or
  • A department within a business that is responsible for calculating and managing employee’s pay.

Payroll and accounting

Payroll accounting is how a business records how much it pays employees and tracks how much is withheld from employee’s pay for taxes.

Large organisations often outsource payroll accounting duties or employ an entire department to manage payroll. On the other hand, small business owners are likely to be responsible for their business's payroll accounting.

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

  • Recording employee's time worked. For employees on a salary, this starts with a fixed amount, then may be adjusted for leave, overtime, etc. For hourly employees, you will need a system of tracking hours worked.
  • Calculating pay for each employee, including any contractors.
  • Calculating employee benefits or pension contributions
  • Calculating tax. Whilst some taxes are paid by the employer and some are paid by the employee, the employer is resposnible for calculating both.

Because payroll is often a significant expense, it should always be recorded as such.

Payroll and tax

In payroll accounting it is important to distinguish between employee taxes and employer taxes.

Employee taxes are paid by the employee through deductions from their gross pay. For most employees, this includes income tax and National Insurance. For others, tax deductions may also be made for pension contributions and student loan repayments.

Employer taxes are paid by the employer in addition to employee gross pay. If you're an employer, you may need to operate PAYE as part of your payroll. PAYE is HMRC’s system to collect Income tax and National insurance.

Debitoor and payroll

Debitoor invoicing software offers a range of helpful features for businesses with one to many employeers. To keep track of your payroll, you can record an employee's wage or salary as an expense, then list it under the 'Empolyee Salary' category.

You can also export your expenses with just the click of a button if you want to backup your data elsewhere.