Journal entries for payroll
Gross wages are the expense. Only net pay goes to the employees; the deductions are owed to HMRC until they are paid over.
How to book it
- 1
Debit Wages and salaries with the gross amount.
- 2
Credit Bank (net pay) and PAYE and NIC payable (deductions held back).
- 3
Employer's NIC is an extra expense: debit Employer's NIC, credit PAYE and NIC payable.
Worked examples
Payroll: gross wages £27,100.00, PAYE income tax £4,500.00 and employees' NIC £1,850.00 deducted. Net pay is transferred; the deductions are paid to HMRC later.
Correct journal entry
Wages and salaries £27,100.00 / Bank £20,750.00, PAYE and NIC payable £6,350.00
Debit
Wages and salaries£27,100.00
Credit
Bank£20,750.00
PAYE and NIC payable£6,350.00
Why?
- Wages and salaries: expense incurred → debit
- Bank: asset decreases → credit
- PAYE and NIC payable: liability increases → credit
Calculation
- Net pay: £27,100.00 − £4,500.00 − £1,850.00 = £20,750.00
On gross wages of £7,500.00, employer's NIC of 13.8% is due. Book the employer's NIC (paid to HMRC later).
Correct journal entry
Employer's NIC £1,035.00 / PAYE and NIC payable £1,035.00
Debit
Employer's NIC£1,035.00
Credit
PAYE and NIC payable£1,035.00
Why?
- Employer's NIC: expense incurred → debit
- PAYE and NIC payable: liability increases → credit
Calculation
- 13.8% of £7,500.00 = £1,035.00
Your turn
Choose the accounts, enter the amounts and check. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
On gross wages of £25,800.00, employer's NIC of 13.8% is due. Book the employer's NIC (paid to HMRC later).
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
All cases on this topic
All transactionsTypical mistakes
- Booking only net pay as the expense: the expense is gross pay.
- Treating deductions as an expense: they are amounts owed, so a liability.
- Forgetting employer's NIC: it comes on top of gross pay.
Frequently asked questions
What is the journal entry for paying wages?
Debit Wages and salaries (gross), credit Bank (net) and PAYE and NIC payable.
How do you book employer's NIC?
Debit Employer's NIC, credit PAYE and NIC payable.