6700expenseNormal balance: Debitbusiness6700 — Payroll
Payroll covers gross wages paid to W-2 employees, plus the employer's own share of payroll taxes and any employer-paid benefits like a retirement match or health premium contribution. It is a fundamentally different relationship than a 1099 contractor: an employee has taxes withheld and the employer carries additional tax and legal obligations that a subcontractor relationship simply does not create.
As an expense, it carries a normal debit balance. The contrast with Subcontractors (5100) is the most important one in this whole chart, worth restating directly: paying an independent contractor involves no withholding and no employer payroll tax, while an employee relationship involves both, and misclassifying one as the other is a genuine legal and tax problem, not a bookkeeping preference.
Whether an owner belongs in this account at all depends entirely on the business's legal structure. A sole proprietor or partner typically takes an Owner's Draw (3900) rather than wages; an S-corp shareholder-employee, by contrast, is often required to run at least reasonable compensation through payroll like this. This ledger does not calculate withholding or run payroll itself — those figures come from a dedicated payroll provider, and entries here mirror what that provider reports.
What belongs here
- gross wages paid to W-2 employees
- the employer's own share of payroll taxes
- employer-paid benefits such as a retirement match or health premium contribution
- overtime and bonus pay run through regular payroll
What does not belong here
- payments to 1099 independent contractors — Subcontractors (5100), with no withholding and no employer payroll tax
- a sole proprietor or partner's own draw — Owner's Draw (3900), not wages, unless the business is structured as an S-corp with the owner properly on payroll
- amounts withheld from an employee's paycheck that the business is only holding temporarily — Payroll Liabilities (2200) until remitted
Where it shows up
Shows on the income statement, and on Schedule C maps to line 26, Wages. This ledger does not run payroll or calculate withholding itself; entries here mirror what a dedicated payroll provider reports.
Common questions
- Should the owner's pay go through this account?
- It depends on the business structure. A sole proprietor or partner typically takes a draw instead. An S-corp shareholder-employee is often required to run compensation through payroll like this — ask an accountant which applies.
- Does this account calculate payroll taxes for me?
- No — there is no built-in payroll engine. Real payroll figures typically come from a dedicated payroll provider, and this account mirrors what that provider reports rather than computing it independently.