Purpose
Before you map your Chart of Accounts (COA) in UZIO's General Ledger, it helps to know how payroll translates into basic accounting. This article explains which payroll components are expenses and which are liabilities, how debits and credits keep the ledger balanced, and the accounts payroll typically touches. With this in mind, your COA mapping is right the first time.
Who needs this: Any user who sets up the General Ledger in UZIO, usually the Employer Admin or a payroll admin working with the company's bookkeeper. See Setting Up the General Ledger and Exporting Payroll Journal Entries.
Payroll expenses vs payroll liabilities
Expenses are the employer's cost of compensating employees. They are recorded on the income statement:
- Gross wages and salaries, overtime, bonuses and incentives
- Employer payroll taxes (Social Security, Medicare, FUTA, SUTA)
- Employer benefit contributions (health insurance share, 401(k) match, workers' compensation insurance)
Liabilities are amounts you owe to employees, agencies, or third parties until they are paid. They are recorded on the balance sheet:
- Employee net pay (wages payable)
- Employee tax withholdings owed to the government
- Employee deductions owed to providers (401(k), health premiums, garnishments)
Debits and credits
Every payroll transaction touches at least two accounts. In double-entry accounting:
- Debits increase assets and expenses, and decrease liabilities and equity.
- Credits increase liabilities and equity, and decrease assets and expenses.
Total debits must equal total credits. That is what "balanced" means.
In UZIO, each General Ledger account is set up as one of two Account Types: Debit (Expense) or Credit (Liability or Cash). The table below tells you which to choose for each payroll component.
How payroll components classify
| Payroll component | Expense or liability? | Account Type in UZIO |
|---|---|---|
| Gross wages, salaries, overtime, bonuses | Expense (employer labor cost) | Debit |
| Employer payroll taxes | Expense | Debit |
| Employer benefit contributions | Expense | Debit |
| Employee net pay (wages payable) | Liability (owed until paid) | Credit |
| Employee tax withholdings | Liability (owed to agencies) | Credit |
| Employee deductions | Liability (owed to providers) | Credit |
| Garnishments | Liability (owed to agencies or creditors) | Credit |
Commonly used accounts follow the same split. Expense accounts (Salaries & Wages Expense, Payroll Taxes Expense, Health Insurance Expense, 401(k) Match Expense, PTO Expense) are debits. Payable accounts (Salaries Payable, Payroll Taxes Payable, Federal/State Income Tax Payable, FICA Payable, Health Insurance Payable, 401(k) Contributions Payable, Garnishments Payable) are credits.
Common mistake: Mapping employer taxes and employee tax withholdings to the same account. Employer taxes are an expense (debit). Withheld employee taxes are a liability (credit). Keep them in separate accounts. UZIO also keeps federal and state taxes in separate accounts.
Worked example
Payroll facts: gross wages $1,000; employee taxes withheld $150; employee benefit contributions $125; employer taxes $75; employer benefit contributions $125.
| GL account | Entry | Debit | Credit |
|---|---|---|---|
| Salaries and Wages Expense | Debit | 1,000 | |
| Health Insurance/Benefits Expense | Debit | 125 | |
| Employer Taxes Expense | Debit | 75 | |
| Salaries Payable | Credit | 725 | |
| Payroll Taxes Payable | Credit | 225 | |
| Health Insurance/Benefits Payable | Credit | 250 | |
| Totals | 1,200 | 1,200 |
Net pay = 1,000 - 150 - 125 = $725. Taxes payable = 150 employee + 75 employer = $225. Benefits payable = 125 employee + 125 employer = $250. Debits equal credits, so the entry is balanced.
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