What Is Salaries Payable? Definition, Journal Entries, and Late Pay

Salaries payable is the total amount a company owes its employees for work they have already performed but have not yet been paid for. It sits on the balance sheet as a current liability because the debt is typically settled on the next scheduled payday, rarely more than a few weeks out. The balance reflects gross wages earned, not the smaller net figure that lands in employee bank accounts, and it exists because accrual accounting recognizes labor costs in the period the work happens rather than the period the check clears.

How Salaries Payable Differs From Salaries Expense

These two accounts are related but do different work. Salaries expense captures the full cost of salary-based compensation recognized during a reporting period and appears on the income statement. Salaries payable reflects only the portion still unpaid at the end of the period and appears on the balance sheet. In most companies the payable balance is much smaller than the expense, because most wages are paid before the period closes; only the final unpaid days sit in the liability account.

The two accounts move together through journal entries. When you record compensation employees have earned but not yet received, you debit salaries expense and credit salaries payable. When payday comes and cash goes out, you debit salaries payable and credit cash, clearing the liability.

What the Salaries Payable Balance Includes

Because salaries payable is measured at gross, it covers every dollar the employer owes for the pay period, including the amounts that will be withheld and forwarded to third parties rather than paid to the worker directly.

Standard withholdings from the employee’s side include:

Federal income tax, withheld according to IRS tables.¹
Social Security tax at 6.2 percent of wages, applied to earnings up to $184,500 in 2026.²³
Medicare tax at 1.45 percent of all wages, plus an additional 0.9 percent on individual wages above $200,000.²
State income tax, where applicable.
Voluntary deductions the employee has authorized, such as health insurance premiums and retirement contributions.
Court-ordered withholdings, including garnishments for child support and defaulted debts. Federal administrative wage garnishment alone can reach 15 percent of disposable income.⁴

Federal law treats withheld taxes as a special trust fund held for the United States. The employer is a custodian of those dollars, not their owner, until they reach the IRS or other agencies.⁵

The employer also owes its own share of payroll taxes on top of what it withholds. These do not reduce the paycheck but create additional current liabilities recorded separately from salaries payable:

Employer Social Security and Medicare match the employee’s rates on the same wage bases, with no employer match on the additional 0.9 percent Medicare tax.⁶⁷
Federal unemployment tax (FUTA) is 6.0 percent on the first $7,000 of each employee’s annual wages. Employers paying into state unemployment funds generally get a credit of up to 5.4 percent, dropping the effective rate to 0.6 percent.⁸
State unemployment tax, with rates and wage bases that vary by state and are typically experience-rated.

Recording Salaries Payable

Two entries drive the account: an accrual entry that creates the liability, and a payment entry that clears it.

The Accrual Entry at Period End

When employees have earned wages that will not be paid until the following period, the company records an adjusting entry before closing the books. Say employees earned $12,000 in the last three days of the month and payday falls in the next month:

Debit Salaries Expense $12,000 (recognizes the labor cost on the income statement)
Credit Salaries Payable $12,000 (creates the liability on the balance sheet)

Without this step, the period’s income statement understates expenses and overstates net income, and the balance sheet hides a real debt. That matters most at quarter-end and year-end, when auditors, lenders, and investors read the statements.

The Payment Entry on Payday

When the wages are actually paid, the liability is eliminated. In simplified form:

Debit Salaries Payable $12,000
Credit Cash $12,000

In practice the credit side splits. Part goes to cash for the net pay the employee actually receives, and the rest goes to separate liability accounts for federal income tax withheld, Social Security, Medicare, state taxes, and any voluntary deductions. Those withholding liabilities stay on the books until the company remits the funds to the appropriate agencies.

Reversing Entries

Some accountants post a reversing entry on the first day of the new period, flipping the accrual by debiting salaries payable and crediting salaries expense. That way the full payroll can be recorded normally on payday without double-counting the accrued portion. Others skip the reversal and adjust the liability directly when payroll is processed. Both methods land in the same place.

Vacation, Sick Pay, and Bonuses

Salaries payable can also carry obligations for compensated absences and performance bonuses that build up over time, even when payment is months away.

Under generally accepted accounting principles, a company must accrue a liability for future paid absences when four conditions are met: the obligation stems from work the employee has already performed, the unused time either vests or accumulates period to period, payment is probable, and the amount can be reasonably estimated. If your policy allows carryover of unused vacation days or cash-out on separation, the liability grows with each pay period and belongs on the balance sheet.

Year-end bonuses raise a timing question. For a bonus to be recognized as a liability and deducted as an expense in the year employees earned it, the obligation must be fixed and the amount determinable with reasonable accuracy before the books close. A plan that requires the employee to still be on the payroll on the payment date may not qualify as fixed at year-end, which pushes the deduction and the liability into the year the bonus is actually paid. Plans with guaranteed minimum payouts or reallocation of forfeited amounts are more likely to be treated as fixed at year-end.

Paying On Time and What Late Payment Costs

The Fair Labor Standards Act requires employers to pay at least the minimum wage for all hours worked.⁹ Federal law does not set a specific pay frequency, but most states do, with rules that range from weekly to monthly and sometimes differ for hourly and salaried workers.

When wages are not paid on time, an employee can recover the unpaid amount plus an equal amount in liquidated damages under the FLSA, effectively doubling the bill.¹⁰ The Department of Labor can add civil money penalties of up to $2,515 per violation for repeated or willful minimum wage or overtime failures, with that figure adjusted annually for inflation.¹¹ Many states pile on additional penalties.

Paying employees is only half of the compliance picture. Withheld taxes and the employer’s own share must be deposited with the IRS on a schedule tied to the total liability reported during a lookback period:

Monthly depositors ($50,000 or less in the lookback period) deposit by the 15th of the following month.
Semiweekly depositors (more than $50,000) deposit within a few days of each payday.
Any employer accumulating $100,000 or more in liability on a single day must deposit by the next business day.¹²

Missing a deposit deadline triggers a penalty that grows with delay: 2 percent if 1 to 5 days late, 5 percent if 6 to 15 days late, 10 percent past 15 days, and 15 percent once the deposit remains unpaid after an IRS demand notice.¹³ Because withheld taxes are held in trust for the government, officers and other responsible persons inside the company can be held personally liable for unpaid trust fund taxes.⁵

Federal law also requires employers to keep payroll records for at least three years, and supporting documents such as time cards and wage rate tables for at least two years.¹⁴ Those records back every salaries payable entry and are the first thing auditors and regulators ask for.

When a Paycheck Is Never Cashed

If a former employee cannot be located, or a final paycheck is simply never cashed, the salaries payable balance does not disappear. After a dormancy period that varies by state, usually one to three years for wages, unclaimed compensation must be reported and remitted to the state’s unclaimed property division under escheatment laws. Until that transfer happens, the wages stay on the books as a liability, and failure to escheat can bring penalties and interest from the state.

1
Office of the Law Revision Counsel. 26 USC 3402 – Income Tax Collected at Source
2
Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax
3
Social Security Administration. Contribution and Benefit Base
4
U.S. Department of the Treasury. Administrative Wage Garnishment for Employers
5
Office of the Law Revision Counsel. 26 USC 7501 – Liability for Taxes Withheld or Collected
6
Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax
7
Internal Revenue Service. Understanding Employment Taxes
8
Internal Revenue Service. Topic No. 759 – Form 940 Employers Annual Federal Unemployment Tax Return
9
Office of the Law Revision Counsel. 29 USC 206 – Minimum Wage
10
Office of the Law Revision Counsel. 29 USC 216 – Penalties
11
U.S. Department of Labor. Civil Money Penalty Inflation Adjustments
12
Internal Revenue Service. Instructions for Form 941
13
Internal Revenue Service. Failure to Deposit Penalty
14
U.S. Department of Labor. Fact Sheet 21 – Recordkeeping Requirements Under the Fair Labor Standards Act