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Pass through income and costs

Pass through payroll income and costs (funds) Accounting treatment

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How do you handle pass-through payroll funds? My company provides a HR service including payroll processing. It used a payroll company to calculate payroll for a customer. It invoices its customer for a service fee and the payroll funds. The payroll funds are then sent onto the payroll supplier who payout to the employee and govt tax.

Should the payroll piece show on the P&Lor balance sheet

1. Invoice to customer

Dr, Debtor
Cr, Sales service fee
Cr. Payroll deposit liability

Receive cash from Customer
Dr.  Cash
Cr. Debtor

1. Invoice from Payroll provider (vendor)
Dr. Payroll liability. Or should it be asset account and then clear the payroll asset against liability?
Dr. service fee cost of sale
Cr. Creditor

Replies (2)

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By tom123
27th May 2020 15:51

So the employer's money passes through two hands before it reaches the employee?

That would scare me (as an employer) unless you were worldwide like ADP.

I wouldn't want to be involved in this chain, personally.

Others can advise on the recording - but I would also want client accounts in place.

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By paul.benny
27th May 2020 16:15

Agree fully with tom123. The employer should be disbursing all funds directly to employees, HMRC and any other parties for deductions. Too much opportunity for monies to go missing, whether through negligence, weakness or deliberate fault. And there's a whole lot more work required all round.

If you really must do it this way, don't.

If you really, really have to do it this way, make sure all client monies are held in client accounts at your bank; ditto for the bureau. Apart from service fees, all transactions go through the balance sheet only.

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