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For all modern-day businesses, payroll accounting has become mandatory. Companies should maintain records of all the employees working under them.

Besides maintaining employee records, companies should also be proactive in maintaining other details, such as bonus details, commissions, federal tax details, social security tax details, and others.

Being an accounting student, you should have a very good hold on these topics, and you study all these topics in your course of study.
However, there are times you struggle to complete the payroll accounting homework, and you look for a helping hand to finish your homework.

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What is Payroll Accounting?

Payroll Accounting involves keeping track of employee salary. The following expenses must be noted in an organization’s accounting books:

Salaries, wages, commissions, bonuses, and other expenditures companies spend on their employees.
Taxes such as federal income tax, social security tax, medical tax, and other taxes.
Expenditures spent by employers on social security, medicare, and state and federal unemployment taxes.
Fringe benefits include sick days, paid holidays, vacation days, dental insurance, contribution towards pensions and savings etc.
A portion of an employee’s health insurance premium, garnishment of wages, contributions to the United Way, and contributions to the retirement plan.

Overview of the Payroll Accounting Topics

Payroll Accounting in the USA is as per the federal laws imposed by the respective states.
So, it is not the same for every state, and it differs from one state to other based on the local laws.
Here is an overview of a few topics of payroll accounting:

Need for Payroll and Personnel Records

As per the Washington State Law, every employer should maintain the payroll records for at least three years. Also, the employees have every right to ask for information related to their payroll. The payroll records have the following details of the employees:

Name
Address
Occupation
Date of Birth (employees under 18 years)
Employment start date
Total wages earned
Actual hours worked on a daily and weekly basis etc.

Personnel records give specific information about a worker’s behavior, performance, knowledge, skills, and talents concerning their position. Employers are required by federal law to preserve personnel records for at least a year.

For business or legal purposes, personnel records may include the following:

Employee qualifications such as hiring records, past work experience, academic qualifications etc.
Verification of training completed
Job descriptions
Performance evaluations such as corrective action plans, disciplinary actions etc.
Records that might be referred to when providing information to others outside the company

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Social Security Taxes

Social Security tax is a form of tax levied on employers and employees to fund the social security program in the U.S. Generally. It is collected as a payroll tax as directed by the Federal Insurance Contributions Act (FICA). Also, a self-employment tax is directed by the Self-Employed Contributions Act (SECA).

Social Security Tax is generally paid for retirement, disability, and survivorship benefits granted to the American population every year.

Social Security Tax Exemptions

Here are a few exemptions for a few taxpayers who are excluded from paying social security tax:

People who belong to a certain religion and who don’t want to receive Social Security payments in retirement, in the event of disability, or the event of their death
Non-resident aliens, or people who are temporarily studying in the United States but are neither citizens nor legal residents of the nation
Those students who work at the same institution they attend and whose employment depends on them maintaining their enrolment

Income Tax Withholding

The amount of money an employer withholds from an employee’s gross salary and then sends to the government is referred to as withholding tax. In the United States, tax withholding is required for most workers. The employee’s yearly income tax responsibilities are reduced by the amount withheld. Non-resident aliens must withhold taxes from their earnings as well as from other sources of income, like interest and dividends, on their ownership of U.S. company stock.

Withholding tax is used to ensure that employees can afford to pay any income tax they owe. It retains the pay-as-you-go tax collection system in place in the United States. It combats tax evasion and the requirement to issue people with hefty, prohibitive tax bills at the end of the fiscal year.

Unemployment and Compensation Tax Act

Any business with employees is subject to a payroll tax under the Federal Unemployment Tax Act (FUTA).

The money it brings in is distributed to state unemployment insurance programs, which pay unemployment compensation to unemployed persons.

FUTA is a federal law that generates funds to manage job assistance and unemployment insurance programs in every state. Employers must pay annual or quarterly federal unemployment taxes as required by the Act; these payments are a subset of what is known as payroll taxes.

Analyzing and Journalizing Payroll Transactions

An accountant (or the small business owner) records business activity using payroll journal entries.

At least two accounts, usually on different sides of the accounting equation, are affected by each entry:

Assets = Liabilities + Owners Equity

Debits and credits for each journal entry must total the same amount. Accounts on the left of the equation rise when they are debited and fall when they are credited, and the same is true for accounts on the right.

Types of Payroll Journal Entries

There are three steps involved in journaling the payroll process:

Accrue short-term wage liabilities
Move cash to the payroll account
Make payments

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