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
| Dr | Cr | Account |
|---|---|---|
| Dr | Gross wages | |
| Dr | Employers NI | |
| Dr | Pension contributions (P&L) | |
| Cr | Net wages payable (B/S) | |
| Cr | PAYE/NI (B/S) | |
| Cr | Pension control (B/S) |
An Example of the Double Entry for Payroll
Here’s an example payroll summary:
| Gross Pay | PAYE | National Insurance | Pension | Net Pay | Employers NI | Employers Pension | Total PAYE and National Insurance Payable | Total Pensions Payable | |
|---|---|---|---|---|---|---|---|---|---|
| Maggie | 2,000 | 400 | 300 | 65 | 1,235 | 250 | 55 | 950 | 120 |
| Sam | 1,500 | 300 | 200 | 65 | 935 | 175 | 55 | 675 | 120 |
| Total | £3.500 | £700 | £500 | £130 | £2,170 | £425 | £110 | £1,625 | £240 |
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
