The following are the differences of the two:
- Payroll Expenses is an Expenses account while Payroll Liability is a Liability Account.
- Payroll Expense is presented in the Income Statement while Payroll Liability is in the Balance Sheet.
- Payroll Expenses is the amount of salary/wages incurred regardless of being paid or not while Payroll Liability is the amount of incurred not yet paid as of the end of the reporting period.
- Payroll Expenses is a temporary account, meaning it will be closed every end of Fiscal Year while Payroll Liabilities are permanent accounts not closed every end of FY.
What is payroll Liabilities in corporate?
Payroll liabilities are any type of payment related to payroll that the company owes, but has not yet paid. Payroll liabilities can include taxes withheld from employees, such as federal and state income tax, social security and Medicare .
It’s important to find a reliable method for keeping track of payroll liabilities, such as with payroll software or a spreadsheet. Businesses can keep track of the different amounts owed to different entities by using multiple accounts. For example, the company may have one account that lists all gross salaries and wages paid out to each employee. This includes all taxes and other benefits; this account simply shows everything the company paid out in relation to each employee’s employment.
Then the company will have a second account that lists only the salaries or wages actually paid to the employee (their net pay). This is the money they actually receive and doesn’t include taxes, health insurance premiums, etc.
After adjusting all the deductions, it will be a payroll expense payable. When it will be paid, it will become payroll expense paid. Net payroll software 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.