Double Entry for Payroll

The double entry for payroll can be a tricky journal to get right.

Here’s the double entry for payroll and the subsequent payment of net wages and PAYE to HMRC.

What is a Journal Entry

Journal entries are used in bookkeeping to reflect the costs and liabilities of a business.

Some costs can be recorded straight from the bank. But others, like payroll, need several entries.

The double entry for payroll affects:

  • Costs in the profit & loss account (salaries, pension contributions and Employers NI);
  • Liabilities on the balance sheet (net wages payable, PAYE and Pensions control account).

What Figures Do You Need for the Payroll Journal

Before you get started you’ll need to have your payroll summary ready, with the following figures:

  • Gross pay;
  • PAYE and national insurance payable;
  • Pension contributions (for employee and employer);
  • Employers NI.

The Double Entry for Payroll

DrGross wages
DrEmployers NI
DrPension contributions (P&L)
CrNet wages payable (B/S)
CrPension control (B/S)

An Example of the Double Entry for Payroll

Here’s an example payroll summary:

Gross PayPAYENational InsurancePension Net PayEmployers NIEmployers PensionTotal PAYE and National Insurance PayableTotal Pensions Payable

The Payroll Double Entry for this example would be:

Dr Gross Wages£3,500
Dr Employers NI£425
Dr Pension contributions (P&L)£110
Cr Net wages payable (B/S)£2,170
Cr PAYE/NI (B/S) £1,625
Cr Pension control (B/S)£240

The Double Entry for Payment of Net Wages

Once net wages are paid from the bank account, the payment should be posted to the net wages control.

That will reduce the amount of wages outstanding on the Balance Sheet.

The double entry would be:

Dr Net wages payable (B/S)£2,170
Cr Bank£2,170

The Double Entry for Payment of PAYE and National Insurance

Once the PAYE and National Insurance are paid from the bank account a payment also needs to be posted to reduce the outstanding liability.

The double entry would be:

Dr PAYE/NI control account (B/S)£1,625
Cr Bank£1,625

The Double Entry for Payment of Pension Contributions

When the pension contributions have been paid over, the payment needs to get posted the pension control account

The double entry would be:

Dr Pension control account (B/S)£240
Cr Bank£240

Updated 12 April 2019


About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek and money nerd helping financial DIY-ers organise their money so they can hit their goals quicker.