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3 min 52 sec
0:00
Priya's first payday
0:19
Gross pay and net pay
0:53
Employer contributions
1:20
The payroll entry
1:59
Withheld tax isn't yours
2:23
Pay runs in Beeswax
2:54
Recap and quiz
Accounting 101
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People
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Episode 17
Payroll Basics
(Gross, net, and the money that isn't yours.)
Priya's first payday. Gross pay, net pay, employer contributions and the payroll entry, plus why the tax you withhold is never your money.
payroll
gross pay
net pay
tax withheld
superannuation
Transcript
0:00
Priya has joined Northlight Studio. Junior designer. Four thousand a month, before tax. It's her first payday, and Maya is more nervous than Priya is.
0:10
Today: how payroll actually works. And why a pay run touches more accounts than you'd expect.
0:19
Start with gross pay. Four thousand. That's the number in Priya's contract, and it's what the business is paying for her work.
0:27
But Priya doesn't receive four thousand. Maya has to withhold tax from it, and pass that on to the tax office. Let's say eight hundred, to keep the numbers simple. Your real rate depends on the country, and the person.
0:40
What's left is net pay. Three thousand two hundred. That's what lands in Priya's bank. Gross, minus deductions, equals net. Every payslip in the world is built on that one line.
0:53
Then there's a cost Priya never sees. Employer contributions. Superannuation, a workplace pension, or national insurance, depending on where you are. Paid by the business, on top of her salary. Here, four hundred and eighty.
1:08
So Priya takes home three thousand two hundred. And she costs the business four thousand, four hundred and eighty. Both numbers are true. They're just answering different questions.
1:20
Now the entry. It's a big one. The whole gross pay is an expense. Debit wages and salaries, four thousand.
1:28
The credits split three ways. Eight hundred to tax withheld, a liability, because it's owed to the tax office. And three thousand two hundred to net pay payable, owed to Priya, until she's paid.
1:41
Then the contributions. Debit the employer contributions expense, four hundred and eighty. Credit contributions payable. Owed to the fund.
1:52
Pay Priya, and net pay payable is cleared. The tax and contributions sit there, as liabilities, until they're due.
1:59
And here's the one to tattoo somewhere discreet. The tax you've withheld is not your money. It's in your bank account. It looks like your money. It is absolutely not your money. You're holding it for the tax office.
2:13
Spending it, and hoping to catch up later, is one of the fastest ways a small business gets into serious trouble. Keep it aside. Pay it on time.
2:23
In Beeswax, for Australian and UK accounts with the payroll add-on, each pay run builds the payslip and the journal together.
2:31
Wages and salaries. Deductions. Tax withheld. Employer contributions. Each in its own group, with net pay payable balancing the lot. And it all posts to the ledger by itself.
2:45
When you pay the employee, the net pay is cleared. And the liabilities wait, visible, until you pay them. No shoeboxes involved.
2:54
So. Gross pay is the expense. Tax withheld and contributions become liabilities. Net pay is what the employee receives. And withheld tax is never, ever your money.
3:07
Quick one. Gross pay, three thousand. Tax withheld, six hundred. Employer contributions, three hundred and sixty. How much does the employee take home? And what does the business pay in total?
3:20
Have a think.
3:24
Take home: two thousand four hundred. Total cost to the business: three thousand three hundred and sixty. The salary, plus the contributions.
3:35
Payday done. Maya can breathe again. Priya bought everyone biscuits. Coded, correctly, to staff amenities.
3:43
Next time: bank reconciliation. Making sure your books and your bank actually agree. It's more satisfying than it sounds. We promise.