When payroll accounting becomes child's play!

When you do your own bookkeeping, payroll accounting can quickly become a real headache. Between taking into account gross salaries, employee contributions and employer contributions, you have the impression that you need to be a mathematical prodigy to get through the exercise without error?

But the logic behind it all is quite simple.

How do you book a payroll ? When should I use account 425 ? What is the difference between accounts 421 and 641 ? All these questions, and many more besides, will soon hold no secrets for you, thanks to our article that takes you step by step through the process.

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What is payroll and social security accounting?

Payroll accounting is defined as the recording of entries in various accounts for financial movements relating to the salaries of your company's employees.

This is done using the payroll ledger, the OD journal (journal of miscellaneous operations) or pay slips.

As a general rule, it is carried out on a monthly basis, after payroll.

The records concerned are :

• gross wages payable
• the various employee charges
• all employer contributions.

☝️ Payroll accounting is a compulsory operation for most organisations, and contributes to clear and transparent management of salary processing. It can be done in stages.

Let's take a look at these different phases, through a simple and comprehensive payroll accounting tutorial.

#1 Accounting for advance payments

First and foremost, you should be aware that employees have the option of requesting an advance on their salary. If this is the case, booking these advances is the very first step in the process.

This involves entering :

• debit account 425 (Personnel - Advance payments and payments on account) for the total amount of the advance payments,
• credit account 5121, in account 512 Banks, with the same amount.

#2 Recording gross salaries

Next comes the recording of gross salaries and allowances. This is done by debiting account 641 Staff remuneration. The total amount should correspond to the sum of salaries and allowances for the period.

You can be more specific and itemise these different charges. In this case, the accounting entry is made to the following accounts:

• for basic salary: account 6411 Staff remuneration-Salaries, wages,
• for holiday pay: account 6412 Staff remuneration - holiday pay,
• for various bonuses and gratuities: account 6413 Staff remuneration - Bonuses and gratuities,
• for other allowances and benefits: account 6414 Staff remuneration-Miscellaneous allowances and benefits.

At the same time, account 421 Personnel-Remuneration due must be credited with the amount of these gross salaries and allowances. This entry proves that the employer is supposed to pay these sums to the employee.

💡 Posting to account 641: gross or net salary?

This first step involves posting the gross salary, before deduction of payroll charges.

In fact, the sum in question does not really correspond to what will ultimately be paid to the employee, since a certain number of contributions must be deducted. These are known as payroll taxes.

#3 Recording payroll costs

The social security contributions, tax deductions and other deductions from employees' wages should therefore be debited to account 421 Personnel-Remuneration due, as described above. This procedure reduces the amount that the company is actually supposed to pay out to employees.

At the same time, payroll costs are credited to the various accounts of the social security bodies:

• for URSSAF (Social Security and unemployment insurance): account 431 Social Security,
• for mutual insurers: account 4 373 Mutual insurers,
• for retirement and provident funds: account 4373 Caisse de retraite et de prévoyance,
• for other payroll costs: account 4378 Other social security bodies.

It is also at this stage that you should credit :

• objections, if any: account 427 Personnel-Oppositions,
• income tax: account 4421 Withholding tax,
• any advances and payments on account mentioned above: account 425 Personnel - Advances and payments on account.

Here too you can go into greater detail by subdividing certain accounts. For example, you could use an account 43731 to record contributions to one pension fund, and an account 43732 for a second pension fund.

💡 To save time in this exercise, many companies choose to combine the recording of gross wages and payroll charges into a single entry, known as a payroll entry or payroll OD.

#4 Recording employers' contributions

Like the employee, the employer is required to pay a certain number of charges. These are recorded on the debit side, with a corresponding credit entry in the accounts of the social security bodies.

You can also use subdivisions here, but the usual pattern is as follows:

• For employers' contributions to URSSAF and unemployment insurance:
  • debit account 6451 (Contributions to URSSAF) for the gross total of social security contributions,
  • credit account 431 (Social security) by the same amount.
    
    
• For other employer contributions, such as provident fund or pension contributions:
  • debit the associated 645 accounts for the total social security contributions,
  • credit the corresponding 437 accounts by the same amount.

#5 Accounting for net salary payments

Next comes the time to pay employees' net salaries, to pay the social security bodies and to pay back to the State the tax deducted at source.

These operations must be accounted for.

To pay net salaries :

• debit account 421 (Personnel-remuneration due) for the total paid to the employee.
  
  💡 The sum corresponds to the following calculation:

• credit account 512 Banks.

#6 Accounting for the payment of social security contributions

Payments to social security bodies correspond to the sum of :

• employee contributions due to social security bodies,
• employer's social security contributions.

For accounting purposes, this amount is entered :

• debit the relevant 43 accounts,
• as a credit to account 512 Banks.

#7 Payment of withholding tax

Finally, the employer is required to pay the amount of the withholding tax to the Treasury.

In accounting terms, the sum is entered :

• debit to account 4421 Withholding tax on income tax at source,
• credit to account 512 Banks.

Example of payroll accounting

To help you see things more clearly, here is an example of payroll accounting.

It shows the 3 main parts taken into account in this exercise, i.e. salaries, employee contributions and employer contributions.

Is it necessary to use software for payroll accounting?

The theory is all well and good, but in practice payroll accounting requires a great deal of rigour (there's no room for error!) and can sometimes be quite time-consuming. As well as being unavoidable, the use of software makes the job much easier.

🛠️ The following tools are available:

• Payroll software. This includes all the data relating to employees' pay slips. And the good news is that it is often possible to export this information to your accounting solution.
  
  
• Accounting software. There are a large number of accounting tools available, and some are perfectly suited to the needs of VSEs and SMEs.
  Sage Business Cloud Compta is one of them. It lets you simply export the entries concerned into the interface, so as to limit data entry errors. Checking and validating these entries is automated to the maximum, saving you precious time. Finally, all the information and accounting documents are centralised in one place for easy access by other members of the company and the chartered accountant.

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Payroll accounting in a nutshell

Payroll accounting is a demanding task, but it is also a regular one, as it is carried out every month.

It involves making entries in various accounts for :

• gross salaries
• employers' and social security contributions
• payment of net wages and social security contributions,
• payment of the withholding tax.

But if you carefully follow the steps described above and equip yourself with the right software, the whole process will be child's play!