What are payroll liabilities? Types + employer guide

The accrual method posts payroll liabilities and expenses in the same period. Payroll processing is complex, meaning you’re likely to struggle to stay on top of the process. A very important part of managing payroll is tracking and paying payroll liabilities. You incur these when you process payroll—and will pay them at a later date. Managing payroll is one of the top challenges for small business owners, according to a Justworks and The Harris Poll survey. You have options when it comes to managing your payroll liabilities.

Payroll taxes

Second, you have payroll taxes and expenses that are specific to you as an employer. Payroll liabilities are payroll-related payments you must pay for your business. These liabilities include employee-earned wages your workers haven’t yet received, employee taxes and payroll service costs. When it comes to handling your federal payroll tax liabilities, deposit them according to your IRS depositing schedule. You will either expanded accounting equation deposit your payroll tax liability monthly or semiweekly, depending on your previous tax liability during the IRS four-quarter lookback period.

How to track payroll liabilities

Review the report, so you can post each adjusted journal entry. Every business will have some payroll liabilities, but what are they, and what’s the best way to keep track of and manage your liabilities? Payroll liabilities affect not only the health of your business but also the livelihoods of your employees.

Contractors are responsible for their own tax withholdings. They will submit their own FICA and solo benefits packages. Business.com aims to help business owners make informed decisions to support and grow their companies. We research and recommend products and services suitable for various business types, investing thousands of hours each year in this process. Wages and taxes aren’t your only payroll-related liabilities.

Payroll Liabilities Versus Payroll Expenses

Unless you handle payroll by hand, you have to pay for software or a PEO (professional employer organization). These are liabilities you incur and are responsible for paying. Every seasoned business owner knows that payroll isn’t just about cutting retail accounting checks. It’s also about managing the (often overlooked) financial obligations that come with having a team. While she’ll only take home $624.97 of employee pay, you still pay the $800.

1. But recording payroll liabilities gets more complicated as you grow, hire new people, and offer more benefits.
2. If you employ union workers, you must comply with the pay and overtime rates required in the collective bargaining agreement with the union.
3. Note that no taxes are withheld on compensation paid to independent contractors.
4. Unpaid employee wages make up the largest part of your pay-related liabilities.

How To Calculate Your Payroll Liability

Some payroll liabilities are reclassified into a payroll expense account when payments simple definition of accounting are sent to a third party. The cost incurred to retain an accountant or a payroll provider company is a business expense. This allows you to enter information into your payroll software and accounting tools.

As you can see, her pay includes the withholdings for her federal and state income tax, state disability tax, and her half of FICA taxes. You can use software to reconcile the payroll liability data and ensure you’re processing payroll correctly. There are a lot of factors to consider when it comes to payroll liabilities. Keeping track of them may seem like a complex process because there are several things you need to do.