Payroll Journal Entries – Part 3

This article is Part 3 of a series of articles dealing with the matter of posting payroll expenses and liabilities in your books via journal entries.

Part 3 will specifically address recognizing retirement benefits employee deductions and the corresponding company contributions and liabilities in your books via journal entries.

So, to get started, let’s say your company has five employees and all employees are part of a company 401(k) plan. Each employee has pre-tax (or post-tax depending on the type of retirement plan) dollars deducted from their paychecks and there are corresponding company matches (paid for by company) to each employee’s 401(k) retirement plan (for this paycheck).

You just processed payroll for the upcoming pay date and thus the moneys for the net wages were taken out of your bank account. However, you still need to recognize the following for the retirement benefits portion of the payroll:

• Employee Deductions – These are simply going to be gross wage expenses in your books because it is from the employees’ wages that the employee paid share of the 401(k) moneys were taken out from.
• Company Match – These will be recognized as retirement plan benefits expenses in the company’s books because it is the company that pays for this portion of the employees’ 401(k) plans.
• Retirement Benefits Liabilities – These will be booked as a liability in your company’s books. These liabilities will total BOTH the employee deductions and company contributions.

So, now let’s post that journal entry:

Note: The company match was 3% of the overall gross wages paid.

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.