Easy Payroll Journal Entry Guide for HR and Finance Teams

Whether you're in HR or finance, you know that payroll processing doesn’t end with calculating net pay. You also need to record wage expenses and liabilities in the general ledger (GL) using payroll journal entries to ensure your financial reports reflect the true cost of payroll.

But for many HR and payroll teams, this step can be challenging. You’re expected to provide precise financial data, even if accounting isn't your area of expertise. And when journal entries are late, incomplete, or misaligned with accounting standards, Finance can’t close the books on time or trust the numbers.

This guide breaks down how to create a journal entry, what is included in one, and how to stay compliant across countries.

What is a payroll journal entry?

A payroll journal entry is an accounting record that captures all payroll-related expenses and liabilities in your company’s general ledger (GL), linking payroll operations directly to financial reporting. This allows you to:

• Simplify month-end and year-end financial reporting
• Report payroll taxes more accurately, preventing noncompliance with tax laws and accounting standards
• Track labor costs and employer liabilities for better budgeting and forecasting
• Identify errors early and reduce payroll discrepancies
• Support payroll audit and compliance processes with a clear audit trail of payroll transactions See also: How Payroll Works: The Ultimate Guide

Two sets of values are required to build a complete payroll journal entry: employee earnings and deductions, and employer-paid obligations.

Employee earnings and deductions

These are the items that affect the employee's take-home pay, such as:

• Gross wages, including salary, hourly pay, and overtime
• Withheld income taxes
• Employee-paid benefits, such as health insurance premiums
• Employee portion of payroll taxes, such as social security
• Other payroll deductions, like retirement contributions

Employer obligations

These are additional costs the employer covers, including:

• The employer portion of payroll taxes, such as social security and unemployment taxes
• Employer-paid benefits such as health insurance

You can record these items manually in your company’s GL or automate the process through accounting or payroll systems.

Types of payroll journal entries

Different payroll scenarios require different journal entries. Here are the most common types and when to use them:

Standard payroll entry

A standard payroll entry records the actual payroll payment during a regular pay cycle. Use it to capture gross wages, employer contributions, employee deductions, and net pay that have been processed and paid on schedule.

Accrued payroll entry

An accrued entry for payroll records wages that employees have earned but not yet received by the end of an accounting period. This helps ensure labor costs appear in the correct period, even if the company hasn't processed payroll yet.

Accrual-based accounting relies on this method to match expenses to the period when the work occurred, not when the company issues payment.

Example: ABC Ltd. pays employees on the 5th and 20th of each month. Staff worked from March 20 to 31, but won’t get paid until April 5. On March 31, ABC records an accrued payroll entry to reflect those unpaid wages. The amount is posted to an "Accrued Salaries Payable" account and reversed in April to avoid recording the expense twice.

Year-end or off-cycle entry

A year-end or off-cycle payroll captures payroll activity outside the regular schedule. This includes non-standard payroll items such as:

• Bonuses
• Fringe benefits
• Corrections
• Retroactive pay
• Final pay for terminated employees
• Adjustments made after year-end

You can use this type of entry to record either accrued or paid amounts, depending on the timing. It ensures all compensation and related liabilities are recognized in the correct reporting period, even if processed outside the regular payroll cycle.

Example: ABC Ltd. runs regular payroll on the 25th of each month. On December 30, 2025, management approved year-end bonuses that will be paid in January 2026. To reflect these bonuses in the correct financial year, ABC records a year-end payroll entry for the accrued amounts on December 31, 2025. This ensures the cost is recognized in 2025, even though the cash is disbursed in 2026.

See also: Pay Stubs 101: How to Read A Paycheck

What to include in a payroll journal entry

A payroll journal entry should capture every component of the payroll cycle. Key elements include:

Step-by-step: How to complete a payroll journal entry

Accurate payroll recording is essential for compliance and ensures labor costs are properly reflected in your financials. This step-by-step guide outlines the general process, from collecting data to posting and reconciling journal entries. Keep in mind that requirements may vary by country.

Step one: Collect payroll data

Start by confirming the pay period and payment date. These details determine when to record payroll expenses and whether accruals are necessary.

Next, gather all relevant payroll inputs:

• Employee timesheets
• Salary records
• Overtime hours
• Bonuses
• Any approved adjustments

Review everything carefully before moving on. Mistakes at this stage will affect the entire journal entry.

Step two: Categorize payroll components

Organize payroll data into clear categories:

• Gross wages
• Employee deductions
• Employer-paid taxes
• Benefits
• Reimbursements

Identify which items reduce cash (like net pay) and which create liabilities (for example, taxes withheld).

Clear categorization ensures you capture every component and makes it easier to map amounts to the correct accounts.

Step three: Calculate totals

Calculate the total amounts for each payroll category, including gross wages, employee deductions, employer-paid taxes, and benefits. Add up these amounts and verify them against your payroll reports and bank records. Check for errors or discrepancies.

Export system-generated reports from your payroll platform—such as the payroll register and tax summaries—to get a consolidated gross-to-net view. These reports show gross wages, deductions, employer-paid taxes, and net pay, and help confirm that your totals are accurate and complete.

Confirm that tax rates and deduction limits are accurate for the relevant country, jurisdiction, and employee type.

Step four: Map to the chart of accounts

A chart of accounts lists all financial accounts your business uses to track transactions. Each account has a unique GL code used for accurate classification and reporting.

Assign each payroll item to the correct GL code. For example, gross wages go to a salaries expense account, and tax withholdings go to a tax payable liability account. If your business tracks payroll by team or location, add a cost center or department tag.

Step five: Create the journal entry

Use the categorized and mapped data to build the journal entry. This typically involves recording payroll expenses and setting up liabilities for withheld amounts and employer-paid contributions.

A complete journal entry should include the appropriate debits and credits for each payroll component:

• Debits for expenses such as gross wages, employer taxes, and benefits
• Credits for the corresponding liabilities related to withheld amounts and employer-paid contributions, as well as the cash account for net pay

Write a clear description and reference the pay period for easy audits and reconciliations.

Step six: Post the entry

After reviewing everything, post the journal entry to your accounting system or share it with your finance team. Follow your approval workflow if needed, especially if multiple departments are involved.

Double-check that the entry matches the payroll totals processed through your payroll system.

Step seven: Reconcile results

Compare your journal entry with actual payments to employees, tax authorities, and benefit providers.

Amounts should match exactly. If not, investigate issues with calculations, mapping, or payment execution. Reconciling immediately prevents errors from spreading to future payrolls.

Step eight: Schedule accruals if needed

If the pay period ends after the accounting period, record an accrual to reflect wages and benefits earned but not yet paid. This aligns the expense with the correct financial period.

To do this:

• Calculate the portion of gross wages, employer contributions, and related taxes earned in the period but unpaid as of the cut-off date
• Create a journal entry on the period-end date:
  • Debit the appropriate expense accounts, like salaries expense and employer tax expense
  • Credit liability accounts, such as accrued salaries payable and accrued taxes
• At the start of the next period, create a reversing entry:
  • Debit the liability accounts
  • Credit the expense accounts

When payroll is processed, record the actual payroll journal entry as usual. The reversal will offset the original accrual and keep your books accurate without double-counting the expense.

See also: How to Do Payroll for Small Businesses: A Step-by-Step Checklist

Common payroll journal entry actions

In addition to the main payroll journal entry, you may need to record other related entries to keep your books accurate and compliant. These include reversing and adjusting entries, which help you handle timing differences and post-processing corrections.

These aren’t separate categories of journal entries, but they play a key role in aligning payroll costs with the correct periods and correcting discrepancies.

Reversing entry

Use a reversing entry when you accrue wages or benefits at the end of one period but pay them in the next. This clears the accrual at the start of the new period and prevents double-counting.

For example, if you accrue unpaid wages on the last day of the month, post a reversing entry on the first day of the next month to cancel it before processing payroll.

Reversing entries are part of standard monthly or quarterly close processes in accrual-based systems. They enable clean period-end processes and accurate reporting.

Adjusting entry

Use an adjusting entry when actual payroll amounts differ from earlier estimates or when you find errors, such as misclassifications, after payroll is posted. For example, if you estimated a bonus accrual and the final payout changed, post an adjustment to reflect the difference.

Adjusting entries are common in manual workflows, post-audit reviews, or reconciliations. While they help ensure payroll accuracy for reporting and compliance, they’re often time- and resource-intensive, making a strong case for automating payroll journal entries wherever possible.

Example of a standard payroll journal entry

ABC Ltd. pays employees biweekly. On June 28, it runs payroll covering the period from June 15 to June 28. Because employees are paid on the same day the pay period ends, a standard payroll journal entry is recorded immediately:

Example of an accrued payroll journal entry

ABC Ltd’s employees worked from June 26–30, but payday is on July 5. To close books for Q2, the company records an accrual on June 30, reverses it on July 1, and records the actual payroll journal entries on July 5 as follows.

1. Accrued payroll entry on June 30

2. Reversing entry on July 1

3. Actual payroll entry on July 5

See also: Payroll Implementation Checklist: Step-by-Step Template

Simplify your payroll journal entries with Deel Payroll

Accurate journal entries are essential for compliance, transparency, and timely reporting, especially when managing payroll across multiple countries.

Deel Payroll helps HR and finance teams ensure their journal entries are complete, consistent, and aligned with local tax and compliance requirements. With our intuitive platform, you can customize your GL templates in a few easy steps, build your Chart of Accounts, map payroll items to GL codes, and easily generate journal entries with every payroll run.

In addition to journal entry automation, Deel Payroll simplifies cross-border payroll at scale. It helps you navigate local tax laws, labor regulations, and statutory requirements with ease, no matter where your team is based. With automation and built-in compliance expertise, your HR and finance teams can reduce manual effort and focus on strategic growth.

With Deel, you gain:

• Flexible, automated payroll operations in 130+ countries
• 2,000+ in-house payroll, HR, and legal experts to ensure compliance with local tax and labor regulations
• Real-time gross-to-net (G2N) engine that updates instantly with any adjustment
• A dedicated local payroll manager
• Proactive compliance alerts and automated platform updates aligned with regulatory changes
• Country-specific tax calculations, benefits, and local tax filings
• Advanced global payroll reports
• And 67% ROI, according to the 2025 Forrester TEI Study of Deel clients

Want to see it in action? Book a demo to explore how Deel can streamline your global payroll.