How to calculate salaries expense
- Gather information. Make a list of all your employees and their salaries. Include any bonuses or overtime pay.
- Calculate gross salaries. Add up the basic salaries, bonuses, and overtime pay for each employee. This is their gross salary.
- Deduct withholdings. Subtract any deductions from the gross salaries. This could include income tax, social security, or health insurance premiums.
- Calculate net salaries. The amount left after deductions is the employee’s net salary.
- Add benefits. Add the cost of any benefits the employee receives to their net salary. This could include health insurance, retirement contributions, or paid time off.
- Sum the net salaries and benefits. This is your total salaries expense.
Here is an example:
Employee A
- Basic salary: $3,000
- Bonus: $500
- Gross salary: $3,500
- Deductions: $500 (income tax)
- Net salary: $3,000
- Benefits: $200 (health insurance)
- Total salaries expense: $3,200
Employee B
- Basic salary: $2,800
- Overtime: $200
- Gross salary: $3,000
- Deductions: $400 (income tax)
- Net salary: $2,600
- Benefits: $100 (health insurance)
- Total salaries expense: $2,700
Total salaries expense for both employees: $3,200 + $2,700 = $5,900
Salaries expense is an important part of your business budget.
How to record salaries expense in accounting
The journal entry for salaries expense is:
Debit: Salaries Expense
Credit: Salaries Payable
This journal entry records the liability to pay employees their salaries. The salaries expense account is debited because it is an expense, and the salaries payable account is credited because it is a liability.
For example, if you have two employees and their total salaries are $5,900, the journal entry would be:
Debit: Salaries Expense $5,900
Credit: Salaries Payable $5,900
When you actually pay the salaries to your employees, you would then make the following journal entry:
Debit: Salaries Payable $5,900
Credit: Cash $5,900
This journal entry records the payment of the salaries liability.
Please note that this is a simplified example. There may be other factors that affect the journal entry for salaries expense, such as payroll taxes and benefits.
By accurately calculating your salaries expense, you can make sure you are financially prepared to pay your employees.
