Wage Expense

What Is a Wage Expense?

A wage expense is the cost incurred by companies to pay hourly employees. This detail may likewise incorporate payroll taxes and benefits paid to employees. A wage expense might be recorded as a detail in the expense portion of the income statement. This is a type of variable cost.

Understanding Wage Expenses

Wage expenses are some of the time reported by department and they are probably going to be reported separately for the production department. This department is in many cases the one with the most hourly employees. Then again, wage expenses for production workers might be incorporated into the cost of goods sold (COGS) thing on the income statement.

Wage expenses shift starting with one period then onto the next, contingent upon the number of business days in the period and the amount of extra time to be paid. Business days differ from one month to another and might be impacted by the number of holidays during the period.

Likewise, wage expenses during the Christmas/holiday season might be higher as companies hire more workers to meet the increased demand for shopping. After the holiday season, companies then might cut back on the number of workers when business isn't as occupied and the requirement for extra workers has gone.

Accounting for Wage Expenses

Under the accrual method of accounting, wage expenses are recorded in view of when the work was performed. Interestingly, under the cash method of accounting, wage expenses are recorded at the time the payments are made.

Wages payable is the detail that distinguishes how much in wages are owed to workers yet have not yet been paid. It is a liability account. At the point when a wage expense is recorded it is a debit to the wage expenses account, which requires a credit to the wages payable account for a similar amount until the wage is paid to the worker.

Wages are commonly paid to a worker in the pay period following the period in which the work was performed, so there is generally a deferral, which is reflected in the wages payable account. A wage expense is an expense account that shows up on the income statement while the wages payable account is a liability account that shows up on the balance sheet.

The lowest pay permitted by law

A wage expense needs to basically be equivalent to the minimum wage directed by the federal government or the state government. The current the lowest pay permitted by law in the U.S. is $7.25 an hour and has not been raised starting around 2009. Many states have carried out least wages that are higher than the federal wage and employers in those states need to pay the higher state the lowest pay permitted by law.

Many companies pay a higher the lowest pay permitted by law than the federal or state the lowest pay permitted by law. Models incorporate Walmart, Kroger, Target, Costco, and Amazon.

Wage Expense versus Salary Expense

Wage and salary are frequently utilized interchangeably however they allude to various types of payments for employment. Wages most frequently allude to pay hourly. The worker is paid each hour for a set amount of hours of the week. In the event that they go over the set amount of hours, they are generally paid additional time. Extra time pay can once in a while be higher than the customary time-based compensation; some of the time 1.5x the time-based compensation.

Salary alludes to a set amount of payment that doesn't change consistently and is typically quoted as an annual sum as opposed to hourly. With salaried positions, there is no set amount of hours an individual works, so on the off chance that the person works 40 hours every week or 60 hours per week, there is no difference in pay.

Salaried positions normally likewise accompany better benefits, for example, 401(k) plans, better health care coverage, life insurance, and flexible spending accounts (FSA).

Features

• Wage expenses are variable costs and are recorded on the income statement.
• Salary expenses vary from wage expenses as they are not hourly but instead quoted annually. Wage expenses can cause additional time while salaried positions do exclude additional time pay.
• The wage expense detail may likewise incorporate payroll taxes and benefits paid to the employee.
• A wage expense is the cost incurred by companies to pay hourly employees.
• Wage expenses that are not yet paid are recorded as wages payable on the balance sheet, which is a liability account.
• Under the accrual method of accounting, wage expenses are recorded when the work was proceeded instead of when the worker is paid. Under cash accounting, wage expenses are reported just when the worker is paid.