Because payroll frequently makes up a significant portion of a firm’s operating expenses, the business owner must pay attention to the Year-to-Date Payroll expenses. It is especially valuable to regularly compare employee payroll expenses to the annual budget for those costs. That lets the business owner know if they are on track to meet their projected results for the year.
Year-to-date earnings represent the total payroll expenses for the firm’s employees from the beginning of the year to the date of the report. There are two meanings for year-to-date earnings:
- For the employee, it is the gross income paid from the payroll system. It is not the total of payroll checks received because payroll taxes, withholding taxes and other deductions such as health insurance and garnishments are excluded to calculate the actual checks the employee receives. The total Year-to-Date earnings also appears on the paystub for each employee so that they can know how much they have earned during the year.
- For the Firm, the total year-to-date earnings for all employees will be adjusted to include firm obligations to the employees not yet paid, such as annual bonuses. To display total wage costs the accounting system also include the firm’s portion of payroll taxes, benefits and the like. This total appears on the reports from the payroll system and is carried over to the firm’s P&L for the period.
Allowing the payroll system to calculate all of the several variables related to payroll and payroll expenses makes it very simple to keep track of the firm’s financial position throughout the year. Because the payroll system maintains all of the checks and other calculations, financial reports will always be completely up-to-date and the books and records will reflect the real cost of all employees.