Payroll costs us more than we pay out on payday. How do we book each dollar?

Three amounts, and only one of them reaches your staff

Northbrook Trading pays 12 people each month: 4 in the warehouse and 8 in the office. For September 2026, the staff earn $48,000 before deductions. Accountants call this gross pay. Gross pay is the cost of the work. The staff do not receive all of it.

The first part is net pay: 48,000 − 5,550 − 3,450 − 2,400 = 36,600. This is the take-home pay. The bank pays it to the staff.

The second part is the withholdings: 11,400 that Northbrook takes from pay for other people. An accounting textbook records each deduction as a separate amount that you owe¹. The tax goes to the IRS. The 401(k) money goes to the retirement plan. US rules make the staff's 401(k) money plan assets, and the employer must deposit it within a time limit².

The third part is the employer costs: 4,600 that Northbrook owes in addition to gross pay. In the US, the employer pays its own share of social security and Medicare, and the staff pay a separate share³. So Northbrook's own share is a cost on top of pay. It is not a deduction from pay. The run costs 52,600, and the staff take home 36,600.

An entry that balances and is wrong

The skill calls this error the most common one: an employer cost booked as an employee deduction, or the reverse. The entry still balances, so the books accept it. The skill uses two separate entries to find it. Then it compares each line with the matching column total in the register.

A check that the entry balances does not find this error. The draft's debits equal its credits: 12,450 + 2,400 + 36,600 = 51,450. The line tie finds it, because the wages line does not agree with the register's gross pay. The skill reports the difference as the mixing error or a mapping error. It reports it before anybody posts the entry.

Split the cost, and add the overtime that is not paid yet

Northbrook splits the cost by headcount. That basis is the owner's decision, and the skill never chooses it. Only the cost is split. The amounts owed to others stay as one total.

Northbrook pays overtime one month late. The staff earn overtime from 21 to 30 September, and Northbrook pays it in the October run. A cost that you owe at the period end but have not paid is an accrued expense. Wages are a common example⁴. The skill proposes one estimate for this, labelled ESTIMATE.

An accrual for the wages only is too low. It leaves out the employer costs on those wages, here 179.69. The entry reverses on 1 October, so the October run does not count the cost two times.

Before you post anything, the skill compares the run with June, July and August. Gross pay is the same, 48,000, in each month. Income tax withheld falls by 150, which is less than Northbrook's 5% limit. Office cost increases by 2,000, because the software project stopped. Until August, 2,000 of office pay each month went to the project as an asset. The skill flags this change, and the bonus run of 15 September, for you to explain.

Your payroll provider pays the staff, and the debt stays yours

PayrollCo calculates the pay and takes the net pay of 36,600 from Northbrook's bank on the pay date. That amount goes through the payroll clearing account 2200, so the account is at nil after the run. PayrollCo sends its fee as a separate bill. Northbrook deposits the federal taxes itself.

A provider does not take over your payroll tax debt. If the provider does not deposit the tax, the IRS can charge penalties and interest to the employer⁵. So the skill keeps every amount owed in Northbrook's own accounts. Some providers take one lump sum for pay, taxes and their fee. The skill books that sum one part at a time, never as one expense.

The clearing account already held 2,223.40 from earlier months. That balance is not from this run. The skill leaves it for the payroll clearing reconciliation. After you post the entries, the payroll reconciliation checks the quarter against the bank and the tax filings.

Eight items, in one message

The skill asks these first, in one short batch. It asks only for what it cannot already see.

1. Use MosoFin for this run, or upload the data yourself?
   MosoFin is the connection to your books. With it, the skill reads your accounts from there. Without it, you upload the files, and the checks are the same. It asks only if your account has the MosoFin tools.
2. Which company, and which pay run? In a group, which company pays these people?
   Each company gets its own entries, against its own accounts. The skill never chooses the company for you.
3. The pay period and the pay date. And do you keep the books on a cash basis or an accrual basis?
   These decide if a month-end accrual is necessary.
4. The payroll register or report for the run.
   Every amount comes from it. Without a register, the skill has nothing to build from, and it says so.
5. Your employer costs: your tax share, retirement match and benefit costs.
   They are extra cost and extra debt, not deductions. They are usually in the register. If they are missing, the skill says that the cost is incomplete.
6. Do you use a payroll clearing account?
   This changes where net pay goes. On the MosoFin path, the skill looks for one and then asks you to agree.
7. If you split the cost by department: on what basis? Hours, headcount or direct assignment?
   A list of departments in your books does not tell how to split the cost. The basis is your decision.
8. Is any pay in this run part of an asset, for example software that you build?
   That pay goes to an asset account, not to expense. The register does not show it, so the skill always asks.

Then it reads the plan back and waits for your yes. This is the skill's own example, word for word. The skill's example pays the September run on Friday 25 September, and this page follows it. Our other payroll pages pay it on Wednesday 30 September. The amounts are the same.

"Building the payroll journal for Northbrook Trading's monthly run for September (pay period 1–30 September, pay date 25 September), from the register you uploaded, against the chart read from your Mosofin connection. Net pay through the payroll clearing account; wages and employer costs split by department on headcount; no capitalised labour. Shall I go ahead?"

Then it names the file and reports what it read: the period, 12 people paid, and the totals for each part of pay. It never repeats one person's line.

Connect your books, or upload the register and your accounts

The proposed entries, and a workpaper with eight sheets

Every entry carries this mark from the skill:

PROPOSED — NOT POSTED

It asks before it makes the Excel file. After you approve the results, it offers to save your account map and your entry layout for the next run. It never saves an amount or any person's pay.

Seven terms, in plain English

Payroll register

The provider's report of one pay run: gross pay, each deduction, net pay and the employer costs.

Gross pay

What the staff earn before deductions. It is the cost of their work.

Net pay

The take-home pay that the bank pays to the staff¹.

Withholding

Money that you take from pay for somebody else, for example tax or a 401(k). You owe it to them until you pay it.

Employer costs

Costs that you owe on top of pay, for example your share of social security and Medicare³.

Payroll clearing account

A waiting room in your books for net pay. It returns to nil when the bank pays the staff.

Accrual

An entry for a cost that you owe at the period end but have not paid⁴.

Where the facts on this page come from

The sources are two sections of an accounting textbook, two IRS pages and a US Department of Labor page. We found each one on 28 October 2026 in search results. We did not open the pages, so follow each link for today's wording. What the skill does comes from the skill's own files.

1. OpenStax: Principles of Accounting, Volume 1, 12.5 Record Transactions Incurred in Preparing PayrollThe employee entry records gross pay as salaries expense and each deduction as a separate amount owed. Take-home pay stays as salaries payable until it is paid. The employer records its own taxes and benefits in a separate entry.
2. U.S. Department of Labor, EBSA: ERISA Fiduciary Advisor, depositing participant contributionsEmployee 401(k) deferrals become plan assets when the employer can reasonably separate them from its own assets. There is a latest deposit date.
3. IRS: Publication 15 (2026), (Circular E), Employer's Tax GuideThe employer and the employee each pay a share of social security and Medicare tax. The employer's share is its own tax.
4. OpenStax: Principles of Accounting, Volume 1, 4.3 Record and Post the Common Types of Adjusting EntriesAn accrued expense belongs to a period, but the business has not paid it yet. Salaries are one example. When the wages are paid in the next period, the amount owed and the cash both decrease.
5. IRS: Outsourcing payroll and third-party payersA payroll provider does not take over the employer's employment tax debt. If the provider does not deposit the tax, the IRS can charge penalties and interest to the employer.

No outside authority backs the two-entry rule, the line tie, the run comparison, the ESTIMATE rule or the eight sheets. They are the skill's own rules. The textbook accrues wages only. The rule that adds the employer costs to the accrual is the skill's rule. We made up Northbrook Trading, PayrollCo and every figure in the example for this page. The 5% limit and the cost ratio in the estimate are the example's choices, not a rule or a tax rate. All five sources are US sources.