How Is Payroll Liability Established? | Patriot Software

How Is Payroll Liability Established?

small business owners keep payroll liability separateWithin payroll management, payroll liabilities are kept separate from other types of accounts payable.

Payroll liabilities include amounts owed to the employee(s). Within accounting, the employee’s gross earnings are a liability, or a payable expense, to the business. Payroll liabilities include the salaries required to be paid (paychecks), any amounts paid to retirement accounts or healthcare accounts, and employer taxes.

The gross wage of an employee is reduced by the withholdings taken out of his or her paycheck by the employer. Once the liability has been settled with a payment to the employee, it is then defined as payroll.

Payroll Liability: Deductions

Deductions, including those for taxes, healthcare, retirement accounts, garnishments, and child support payments, are withheld from the employee. During the time in which the employer is holding these deductions, they are called payroll liabilities (or employee liabilities). These funds are payroll liabilities for the employer because although the employer does not pay them directly to the employee, the employer has to pay them to various agencies and companies.

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After paying the employee the net amount of earnings (after all deductions are made), the employer then pays the withheld funds from the gross earnings to the appropriate payees. The payees may include the appropriate tax agencies, employee (either via a check or direct deposit), any garnishment agencies, and benefit administrators on the behalf of the employee.

Keeping track of payroll laws and tax rates is exhausting, and you still have a business to manage. Let Patriot shoulder the stress for you with online payroll software. You can have the peace of mind that comes with our professional payroll services; and you can get back to money making aspects of your business.

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