How To Correctly Post Your Salary Journal
This applies to all payroll software ...
POSTED BY ALISON MEAD ON 03/09/2018 @ 8:00AM
When doing bookkeeping training, one of the most common errors I come across is the incorrect posting of the salary journals. You need to accurately reflect the cost of your wages in your accounts ...
With the right bookkeeping training, posting your salary journal is straightforward!
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This normally includes the gross salary for your staff plus the employer's National Insurance, and increasingly, especially with auto-enrolment, the cost of your employer's pension too.
The common mistake is to post your cheques paid to staff and your cheque to the HMRC straight into the wages costs area of your profit and loss account. In Sage that would be to codes in the 7000 range.
"This will get you by, but wouldn't you rather learn how to post the journals properly?"
To correctly post your salary journal, each journal needs to have a matching debit and credit in any double-entry bookkeeping system. The salary journal is no exception.
Usually, the wages are run a few days before they are actually paid, and the Income Tax and National Insurance are not due to be paid until the 19th of the following month. This means the costs of the wages should be posted to the profit and loss account, then the planned net wages and any tax or pension payments should go into the balance sheet until they are paid.
If you have any student loans to collect and pay to HMRC then I would add this to the PAYE total in the journal, as the figure is added to the PAYE in the P32 form which tells you what to pay HMRC and is included in the payment to them.
"Here's an example salary journal in Sage!"
This is an example of a simple wages journal in Sage 50 Payroll. There are codes in the balance sheet also for attachment of earnings if these are to be deducted from net pay. If you are a small employer eligible to reclaim any Sick Pay, Maternity Pay or Adoption Pay in the month this can be posted to the PAYE/NI account to reduce the payment being made to HMRC.
When you actually pay your staff you should record your wages and HMRC payments. This bank payment should then be entered using the same code as your Net Wages (2220 in Sage). This means that at the end of each month after the wages are paid, the account in the balance sheet should be zero. If it is not then there is something wrong in the accounts.
The payment of PAYE/NI to the HMRC should be posted to the PAYE/NI account (2210 in Sage). When you first install Sage there are usually separate PAYE and NI accounts, but these should be consolidated into one as HMRC like to have one payment with the totals combined, and you don't want to have to split your payment when made into two different accounts.
Payment made to the pension fund should be made to the balance sheet pension fund code (2230 in Sage), which should be the total of the employees and employers contributions added together.
"You can automatically post your wages!"
If you use Sage Instant Payroll or Sage 50 Payroll, you can use the Nominal Link to automatically post your wages from Payroll into Sage 50 Accounts or Sage Instant Accounts. This can save a lot of time and effort and reduce the scope for human error.
The examples given in this blog post are in Sage 50 Payroll, but the same theory applies whatever software you use. With the right software and the right training, running your own payroll doesn't need to be a complicated job.
"Would you like to know more?"
If you'd like to find out more about salary journals, need some help getting started with payroll or would like some bookkeeping refresher training, then do give me a call on 01604 420057 or click here to ping me an email and let's see how I can help you.
Until next time ...
We can also supply and install Sage One and Xero payroll, or help with the HMRC basic payroll tools too!
If anything I've written here resonates with you, why not visit www.siliconbullet.com to discover how we can help you with accounts and IT support?
Alison loves bookkeeping. She has been helping clients to be better bookkeepers in Sage 50 for over 22 years and has more recently added Xero Accreditation to her list of skills.
She specialises in a very unique hand-holding method of training, helping bookkeepers and business owners to use their accounts software as and when they need support in setting up and producing their invoices, reports and financial information.
Alison combines her role at Silicon Bullet with running two network marketing businesses and is also a Regional Leader for 4Networking as she likes to keep busy.
You know what they say, if you want something done well ask a busy person!