10 Things You Should Know About Payroll Expenses

Payroll expenses are used for compensating employees and contractors in your business.

The PPP Flexibility Act requires you to allot 60% in payroll expenses. You need to allocate the right amount for eligible payroll expenses and stay away from PPP loan fraud.

Processing your payroll requires you to collect and manage data. There are a lot of things you need to consider when managing your PPP loan’s payroll expenses. Here are 10 things you need to know.

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1. Continuous Monitoring Of Payroll Expenses Keeps You From Fraud Accusations.

Staying organized with your payroll expenses has its perks. When you’re aware of how you manage it, you can confidently face false accusations of fraud.

It becomes very easy to find your billing statements and journals. You can show immediately the proof that you’ve done nothing wrong.

2. PPP Loan Recipients Are At Risk Of Fraud Accusations

PPP loan fraud cases are rising. The federal governments investigations related to PPP are expected to become more strict in the coming months

The Department of Justice (DOJ) continues investigating allegations of PPP loan fraud. While the Small Business Administration (SBA) consistently audits businesses with PPP loans.

If you acquired a PPP loan or if you’re planning to get one, keep in mind that the loan program is prone to fraud schemes. The potential risk for borrowers facing criminal protection for PPP fraud is high.

3. You Should Allocate 60% Of Your Loan To Payroll Expenses.

Last year, at least 75% of PPP loans were required to be used for payroll. The remaining 25% was allotted to rent, mortgage, and utilities.

The PPP Flexibility Act changed this recently. Now, you’re allowed to spend 60% of your PPP loan for payroll expenses. Then, the remaining 40% goes to other eligible expenses.

4. Payroll Expenses Included in PPP Loans

Here are the common payroll expenses included in the PPP loan. This is where you should put at least 60% of your loan.

Compensation – The total cash and non-cash payments you provide to your employees.
Leave of absence – This is the time allowed for an employee to be away from work.
Separation pay and final pay – The compensation to an employee who is parting ways with the company
Insurance premium – These cover healthcare, home, life, and vehicle insurances.
Retirement plan contributions – The retirement plan can be for 401(k) or 403(b).
Federal taxes – These contribute to the country’s growth and development.
State tax – These pay for your state’s government.

5. Payroll Liabilities Can Become Payroll Expenses

An employer accrues liabilities as their employees work for them. Most of the time, they pay in arrears. These are money owed to be paid later.

Before a salary gets to the employee, it’s considered a payroll liability. But after it gets paid, it becomes a payroll expense.

6. Steps In Processing Payroll Expense

The payroll process requires a systematized process. It’s usually composed of the following steps.

Collecting information on Form W-4
Using the payroll cycle to determine gross pay
Using gross pay and other data to calculate net pay
Submitting payroll tax deposits
Completing payroll tax forms
Reporting pay amounts to workers
Filing records

Partnering with a payroll provider is more practical. But it’s still possible to complete your company’s payroll expense on your own.

7. Common Payroll Expense Journal Entries

Businesses must post three common payroll journal entries. You can also do this by yourself or by working with a payroll provider.

Accrued Payroll – These are company earnings that are not yet recorded in the general ledger accounts
Accrued Payroll in Cash – This is where you debit wage payable and credit cash.
Income Taxes Withheld – This takes an amount of cash out of an employee’s paycheck. It’s used to pay the government.

8. Payroll Loan Options For Small Businesses

Small businesses may need support for their enterprise, especially during times of crisis. There are many forms of financing payroll loan:

PPP loan for business emergency funds during the pandemic.
Invoice financing for newer businesses.
Business line of credit for long-term payroll.

It’s ideal to do some research to figure out which type of loan works for you. This ensures you’re getting the best deal for your business.

9. Prison Sentences And Fines Await Borrowers Guilty Of Fraud.

If you’re proven guilty by the court, even if you’ve done nothing wrong, you’re going to face a big loss. No one wants to get sanctioned with hefty fines.

Never ignore the punishments associated with PPP loan fraud. These charges may give you penalties of up to 30 years in prison and up to a $1,000,000 fine.

It’s important to have an understanding of the consequences borrowers might face.