Depending on the size of the company, it may choose to outsource it’s payroll and taxes to a company that specializes in these fields. If payroll remains an inside job, a lot of record keeping, reporting and paper pushing is involved. Payroll is considered a company’s liability.
If the company is on the smaller side, post all your payroll taxes into the balance sheet liability account called Accrued Payroll Taxes. Usually, you will only have one balance sheet account for accruing payroll taxes. However, if you are dealing with several employees, you may choose to set up individual accounts for each type of tax and benefit the company compensates to its employees. A long list of individual accounts will be the result.
Individual accounts include:
Post any employer expenses related to payroll as well. You record the tax and insurance expenses related to that payroll period even though you won’t pay these expenses until they are due. Accrued insurance payments are posted to the Accounts Payable account or to individual payable accounts for each insurance company.
In addition, it is important to keep a payroll ledger for each employee that lists the details of each employee’s paycheck at the end of each pay period. This information helps track paid vacation and other benefits related to days off. When an employee is hired, make sure to begin a record of his/her payroll information like the individual’s W-4 withholding allowances, their particular benefits, deductions and wage.