What Is a Wage Expense?

A wage expense is a type of variable cost ꧑inc♏urred by businesses to pay their hourly employees. It may be recorded as a line item in the expense portion of the income statement.

As a matter of record-keeping, the wage expe♎nses line item may also include the 𒉰expenses of payroll taxes and employee benefits.

Understanding Wage Expenses

Wage expenses are sometimes reported for each d💛epartment. This is usually the case when there is a production department, which often has the most hourly employee✅s.

As an alternative, wage expenses for production workers may be added into the 澳洲幸运5官方开奖结果体彩网:cost of goods sold (COGS) item on the income statement. 

Wage ex🌠penses vary from one period to the next, depending on the number of business days in the period and the amount of overtime to be paid.

For 💯many businesses, wage expenses increase during the winter holiday season in response to higher demand for their products. After t🍨he holiday season, companies may cut back on the number of workers as sales slow.

Accounting for Wage Expenses

Under the 澳洲幸运5官方开奖结果体彩网:accrual method of accounting, wage expenses are recorded based on when the work was perfor🍰med. Under the cash method of accounting, wage expenses are recorded at the time the payments are made.

澳洲幸运5官方开奖结果体彩网:Wages payable is the line item that records how much money is owed to workers but not yet paid. When a wage expense is recorded it is a debit to the wage expenses account, which requires a credit to 𝄹the wages payable account f💙or the same amount until the wage is paid to the worker.

Wa🐠ges are typically paid to a worker in the pay period following the period in which the work was performed, so there is always a delay tha𝄹t must be reflected in the wages payable account.

A wage expense is listed on the income statement while the wages payable account is a 澳洲幸运5官方开奖结果体彩网:liability account on the 澳洲幸运5官方开奖结果体彩网:balance sheet.

Minimum Wage

At the least, a wage expense has to be equal to the federal government's or applicable state government's 澳洲幸运5官方开奖结果体彩网:minimum wage. The current federal minimum wage is $7.25 an hour and has not been r🌃aised since 200🐲9.

Many states have implemented minimum wages that are higher than the federal minimum wage and employers in those states have to pay the higher state minimum wage.

Many companies choose to pay a higher minimum wage than the federal or state minimum wage. They include Walmart, Kroger, Target, Costco, and Amazon.

Wage Expense vs. Salary Expense

Wage and salary are often used interchangeably but they refer to different types of payments for employment.

Wages most often mean hourly pay. The worker is paid per hour for a set number of hours per week. If they go over the set amount of hours, they are usually paid overtime. Overtime pay is typically higher than regular hourly pay; often it's 1.5x the hourly pay.

Salary refers to a set payment and is usually quoted as an annual sum rather than an hou♓r🗹ly wage. There is no strict number of hours per week that the individual works, and overtime is rarely paid.

Salaried jobs usually also come with better benefits such as 澳洲幸运5官方开奖结果体彩网:401(k) plans, health insurance, life insurance, and 澳洲幸运5官方开奖结果体彩网:flexible spending accounts (FSAs).

The Bottom Line

In business and in accounting, wages and salary are two different types of exꦚpenses. Wages are hourly rates paid to workers, and they may vary seasonally along with business demandꦺ for labor.

Salary is considered an annual expense of doing business. Salaried j☂obs tend to be more secure and usually have better benefits than hourly ♏work.