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What is the Difference Between Payroll Expenses and Payroll Liabilities

If your company is big multinational, it will have surely lots of employees in different branches and department. For proper record of their salaries payment, there will be a separate payroll department. If you are working in this department and your duty is to record payroll, you should know the difference between payroll expenses and payroll liabilities. Here is the list of main differences between these two payroll terms.


1st Basis of Difference : Meaning

Meaning of Payroll Expenses

Payroll expenses represent the total expenses which is paid or to pay to employees in the form of salaries. Employees are the service providers and for their services, they get the salary. Company will record all these expenses in simple category whose name will be payroll expenses. For example in the Govt. Hospital a MBBS doctor will get salary of Rs. 1,00,000. Suppose, there are 10 doctors. Suppose, there are other staff whose salaries is Rs. 20,00,000. Total payroll expense in which Govt. will use his cash will be Rs. 30,00,000.

Meaning of Payroll Liabilities

On the date of payment to employees, all the payroll expenses will convert in payroll liabilities. If company does not pay to employees, it is just loan which we have taken from employees, so it will be our payroll liabilities. We can also say it outstanding liabilities. When we pay payroll liabilities, our cash will decrease and our this payroll liabilities will also decrease by debit payroll liabilities and credit cash.


2nd Basis of Difference : Location in Financial Statement 

Payroll Expenses

On the due date of salary payments, we show all payroll expenses in our account by passing journal entries. In financial statement, it will go to income statement and it will be used to compare with current financial year's income. Both paid and payable payroll expenses will be shown as expense in income statement.

Payroll Liabilities

If on the due date of salary payment, company does not pay, it will become the liability to pay the salary. So, showing this liability, we make balance sheet. In balance sheet, payroll liabilities will show as current liabilities because if this year, we do not pay, it is sure, next year, we will pay all payroll liabilities.



3rd Basis of Difference : TDS and Other Tax

Payroll Expenses

It is the duty of company to cut the TDS and other Tax when it pay the salaries to employees. When payroll expense account will be adjust with these taxation. In these taxation, there may be also included professional tax which is deducted from total salary payment. So, total salary in which include all the deductions will be company's total payroll expense. After adjusting all the deductions, it will be payroll expense payable. When it will paid, it will become payroll expense paid.

Payroll Liabilities

Net payroll expense after adjusting all the TDS and Tax deduction will be our payroll expense, when it is not paid, it will become our payroll liabilities. TDS and All other Tax deductions from total salaries will be also our liabilities but all these liabilities will be under Tax and Duties.

Related : Payroll Journal Entries 

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Accounting Education: What is the Difference Between Payroll Expenses and Payroll Liabilities
What is the Difference Between Payroll Expenses and Payroll Liabilities
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