Salaries payable definition

/

What are Salaries Payable?

Salaries payable is a liability account that contains the amounts of any salaries owed to employees, which have not yet been paid to them. The balance in the account represents the salaries liability of a business as of the balance sheet date. This account is classified as a current liability, since such payments are typically payable in less than one year. The amount of salaries payable can be particularly large under any of the following circumstances:

  • There is a large gap between the pay-through date of salaries paid and the end of the reporting period; or

  • The amount of salaries paid to any individuals in the company (such as the CEO) are quite large; or

  • The company is comprised largely of salaried personnel, as is frequently the case in a professional services business, such as a consulting firm.

  • An employee may have been terminated, and the amount of that person's severance pay has not yet been paid.

A company may employ a large number of salaried personnel and still not have any salaries payable as of the end of a reporting period, if salaries are typically paid at the end of that period. This is because there are no days at the end of the period for which employees have earned their salaries, but have not yet been paid.

Related AccountingTools Courses

Bookkeeping Guidebook

Payables Management

The Balance Sheet

Accounting for Salaries Payable

There are several steps involved to properly account for salaries payable. These steps are as follows:

  1. Calculate the number of days for which salaried employees have not yet been paid. This is the number of business days between the last pay-through date and the end of the reporting period.

  2. Multiply these days by the pay rate per day for each affected person. The result will be the total salaries payable liability. This amount is charged to compensation expense, which is a debit. The offsetting credit is to the salaries payable account. The balance in the salaries payable account increases with a credit and decreases with a debit.

  3. Reverse this entry at the beginning of the next reporting period.

Salaries Payable vs. Salaries Expense

The difference between salaries payable and salaries expense is that the expense encompasses the full amount of salary-based compensation paid during a reporting period, while salaries payable only encompasses any salaries not yet paid as of the end of a reporting period. Thus, the amount of salaries payable is usually much lower than the amount of salaries expense.