Finance
Fact-checked

At SmartCapitalMind, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.

Learn more...

What Is a Wage Expense?

A wage expense is the total amount a business pays its employees for their labor. This includes salaries, hourly wages, bonuses, and commissions. It's a crucial component of a company's financial health, reflecting both the cost of talent and the investment in human capital. Understanding this can unlock insights into business operations. How does it impact your company's bottom line?
Ken Black
Ken Black

A wage expense is the expense a company incurs due to paying employees' salaries and benefits. Generally, the term applies to non-manufacturing employees, regardless of whether they are considered hourly employees or salaried employees. Manufacturing wages are typically treated in a slightly different way, and do not factor into wage expenses. The wage expense listed by the company may not equal the actual amount of gross wages an employee receives due to benefits, and possibly other taxes.

Employees who may be part of this calculation could include secretaries, supervisors, and administrators. In some cases, supervisors who work on the line, or participate in the manufacturing process, may have all or part of their wages accounted for in another way, as value added to the product. Whether the expense for the wages are split depends on the company, and possibly on the amount of time the supervisor spends in the manufacturing of goods.

Wage expense is not counted until the actual check is issued, or the transfer of money takes place.
Wage expense is not counted until the actual check is issued, or the transfer of money takes place.

Manufacturing employees are generally not included in wage expenses simply because the cost of their labor is factored into the price of the item being made. While non-manufacturing employees may add value to the company, they do not directly add value to the product the company is manufacturing. That is why their expenses are usually accounted for in a different way.

Usually, companies calculate a wage expense in one of two different ways: When the expense incurs or when the payment is made.
Usually, companies calculate a wage expense in one of two different ways: When the expense incurs or when the payment is made.

Usually, companies calculate a wage expense in one of two different ways. The expense may be calculated at the time the expense incurs, such as when the work is done. It may also be calculated based on when the payment is made to the employee. These two types of accounting methods may have other implications as well.

The accrual accounting method is the name for the method of accounting that accounts for wages as work is being performed. It is often seen in larger companies. In this method of accounting, the wage expense is generally reported as an amount the employees earn, not as an amount paid by the company. Despite the terminology used, it is still an expense to the company.

Manufacturing employees are generally not included in wage expenses.
Manufacturing employees are generally not included in wage expenses.

If the calculation is done at the time wages are paid, it is known as the cash method. Generally, small businesses find this method easier and more preferable to the accrual method of accounting. The wage expense, and any other expense, is not counted until the actual check is issued, or the transfer of money takes place. The same also applies to income. Nothing is counted as income until the check is received.

You might also Like

Discuss this Article

Post your comments
Login:
Forgot password?
Register:
    • Wage expense is not counted until the actual check is issued, or the transfer of money takes place.
      By: robert lerich
      Wage expense is not counted until the actual check is issued, or the transfer of money takes place.
    • Usually, companies calculate a wage expense in one of two different ways: When the expense incurs or when the payment is made.
      By: Nonwarit
      Usually, companies calculate a wage expense in one of two different ways: When the expense incurs or when the payment is made.
    • Manufacturing employees are generally not included in wage expenses.
      By: Marzky Ragsac Jr.
      Manufacturing employees are generally not included in wage expenses.