You're ready to approve a payroll in Wave, so what's next? This guide will walk you through the steps to take after approving a payroll, what payroll transactions look like, and explains how Wave automatically handles your payroll journal transactions.
If you’re using direct deposit to make payroll payments, Wave automatically takes care of your payroll bookkeeping, so there are no additional steps for you to take. The information below serves as an explanation of the process.
Approved payroll journal transactions
Approved payroll journal transactions
Every time you approve a payroll, Wave automatically creates a journal transaction. This transaction records the amounts of each payroll expense, and the amount of money you owe to others, including your employees and the tax authorities. This is what a typical payroll journal transaction looks like:
Let’s break down what all the line items represent.
- The description and date of the journal entry are the last date of the payroll period.
- This line item represents the gross payroll expense, which is the total pay earned by your employees. This is recorded to the expense category Payroll Gross Pay, and is included on your Profit & Loss report.
- This line item is the amount of payroll taxes that you owe as the employer. It is included on your Profit & Loss report as a separate line item.
- This is the amount due to your employees. It is the total of their net paychecks, which are the employee wages after taxes have been subtracted.
- This is the amount of employer payroll taxes that you owe to the government for this payroll period, which in this example is the same amount as line 3.
- This is the amount of employee payroll taxes that you’ve withheld from your employees' paychecks, and need to send to the government.
Lines 4, 5, and 6 are all recorded in an account called Payroll Liabilities. This is the account where all the amounts that you owe for payroll are recorded until they’re paid.
If you delete an approved payroll, a matching journal transaction will be created with the credits and debits reversed, to cancel out the original transaction. The journal transaction’s description will begin with Deleted for ease of reference.
Payroll journal entries cannot be deleted or edited, except for the description, any Uncategorized line items, Notes, and marking the transaction as reviewed. This is in order to keep your payroll accounting correct. You can, however, create a new journal transaction if there are specific adjustments you would like to make, such as separating payroll liabilities into different accounts.
To view your Payroll Liabilities balance, select Reports on the left-hand side menu, then Balance Sheet. Click the Details button in the centre of the page. In the Liabilities section, under Current Liabilities, is a line showing the balance in the Payroll Liabilities account. This is how much you owe to your employee(s) and/or the government on that day. As you pay your employee(s) and send payroll taxes to the government, the balance in the account (the amount you owe) will decrease.
Wave payroll clearing
If you have signed up for direct deposit, Wave will take care of your payroll bookkeeping automatically. Every time you pay your employees or remit your payroll taxes through Wave, a settlement transaction originating from a holding account called Wave Payroll Clearing will automatically be created.
The first time you process a direct deposit payroll, the Wave Payroll Clearing account will be added to your Chart of Accounts as a Money In Transit account.
What is a holding account, and why is it there? When you pay your employees or remit your taxes through Wave, the withdrawal transaction from your bank account won't import into Wave in real time. At the same time, in the real world the funds have been withdrawn, and your Payroll Liabilities should be reduced (when you approve a payroll, the amounts that you need to pay are recognized in a journal transaction as Payroll Liabilities, and when you pay them, those Payroll Liabilities should be reduced).
To account for this, Wave automatically creates a settlement transaction in the Wave Payroll Clearing account, equal to the amount of funds that were withdrawn from your bank, and categorizes it to Payroll Liabilities. 
When the withdrawal from your bank account arrives, it is automatically categorized as a Transfer to Wave Payroll Clearing. This will make the balance in the Wave Payroll Clearing account zero, and you can reconcile your bank account with the bank imported transaction.
- This is a contractor bill payment paid out of the Wave Payroll Clearing account.
- This is the payroll settlement transaction for employee pay, also paid out of the Wave Payroll Clearing account.
- This is the automatically generated transfer between the bank account (where the funds were actually paid out of) and the Wave Payroll Clearing account. This also brings the balance of the Wave Payroll Clearing account to zero.
- This is the withdrawal transaction from your bank account, which is recorded as a transfer to the Wave Payroll Clearing account.
In this way, all of your payroll bookkeeping is captured accurately and automatically.
The Wave Payroll Clearing account balance should be zero after the transfer generated by the withdrawal transaction in your bank account.
If you have not signed up for direct deposit or our Automated Payroll Tax Payment and Filing, check out the sections below for more details on bookkeeping.
Paying employees
If you have signed up for direct deposit, Wave will automatically create a settlement transaction each time you run a payroll. It is created under your Wave Payroll Clearing account, and is categorized to Payroll Liabilities. This transaction represents the amount Wave has withdrawn from your bank account i.e. you are paying the money that you owe to your employees, so the Payroll Liabilities should be reduced.
When the withdrawal transaction from your bank account imports into Wave, it will automatically be categorized as a Transfer to Wave Payroll Clearing. This restores the balance that was withdrawn from this holding account.
The settlement transactions generated by Wave Payroll cannot be edited or deleted.
If you write manual checks, you can either record those checks manually as expense transactions, or wait for the transactions to import from your bank connection. Then, categorize them to Payroll Liabilities to reduce the liability.
Paying contractors
Learn how Wave bookkeeps direct deposit payments made to contractors through Wave’s payroll feature in Automatic bookkeeping when paying contractors via direct deposit.
Learn how to bookkeep other contractor bill payments in Bookkeep contractor payments made outside of Wave.
Paying government agencies
If you’re signed up for Automated Payroll Tax Payment & Filing, and your tax payments are being processed through Wave, a settlement transaction will be created on the day that the money is withdrawn from your bank account, under the Wave Payroll Clearing account. This will appear on your Transactions page as an expense transaction, under the Wave Payroll Clearing account. It will include From Wave Payroll: EFT in the description. The transaction will be categorized to the Payroll Liabilities account, because you are now paying the money that you owe, reducing the balance of your liability.
These funds were withdrawn from your bank account in the real world, so when the withdrawal transaction from your bank account imports into Wave, it will be automatically categorized as a Transfer to Wave Payroll Clearing. This restores the balance that was withdrawn from your Wave Payroll Clearing account.
If you are not remitting your payroll tax payments through Wave, when you make the payment, create an expense transaction or wait for it to import from your bank. Then, categorize the transaction to Payroll Liabilities.