Are Salaries Accounts Payable?

Anybody dealing with the financial matters of a business must have some knowledge about the categories of expenses that there are and the other kinds of financial liabilities that there are. Two terms are usually used in business they are salaries and accounts payable which are similar. In this article, let us understand what each of these terms implies and whether or not salaries meet the definition of accounts payable.

What are Salaries?

Wages are defined as the amounts paid periodically to workers for their work and efforts that they offer to the employer. It is awarded in annual form but may be disbursed in equal installments at certain times and frequencies like weekly, biweekly, or monthly. In addition to the guaranteed base pay rate, salaries may also include other compensation elements such as:

- Bonuses
- Commissions
- Allowances
- Employer contributions to retirement plans are the third option available to employees for funding their retirement.

One may negotiate and set salaries during the offer of employment in the contract of employment or when making an offer of employment. The most common type of pay increase is the merit increase that alters the salary based on performance, the cost of living adjustment that changes the salary based on inflation, or the promotion that changes the salary based on the new position. Wages are one of the largest cost factors in organizational operations across almost any field. Disbursement of salaries is a recurrent obligation and forms part of the company’s regular and fixed financial commitment.

What are Accounts Payable?

Accounts payable therefore means the outstanding amount of money a business entity owes to its suppliers for products or services received on an agreed credit term. This includes expenses such as:

- Inventory and supplies
- Machinery and equipment
- PR, marketing, accounting, and other business services, etc.
- Utility bills
- Business travel reimbursements

While salaries are considered as wages that are tender frequently, accounts payable refer to several expenses that ordinarily accrue distinct payment dates and conditions. Accounts payable in business refer to goods and services that have been received by one business from another business, and when they are supposed to be paid. This is especially helpful in avoiding charges for having paid them very close to the due time or having to scramble for supplies for the children in their classes.

Whereas, salaries and accounts payable differ in that the value, revenue, and profits which are generated for a company come from labor and services from employees. Others are made to facilitate business operations or to enable the business to effectively deliver its services. It is understood that employees have reverting expectations in their remunerations while vendors' terms are contractual.

It is often debated if salaries are a form of accounts payable or not or if salaries are an obligation that can be considered accounts payable.

There are similarities between salaries and accounts payable in that both are categorized as obligations of a business but salaries are not reported as accounts payable in the balance sheet. Here, it is necessary to point out that the term ‘salaries’ is used only for the compensation paid to the employees of the company whereas the term ‘accounts payable’ includes all the amounts owed to the external vendors and creditors only.

However, when it comes to the total cash and working capital, companies should be equally careful while paying salaries as well as bills to their vendors. Failure to meet payroll and pay employees on time because of inadequate cash at hand is equally as unbeneficial as the missed payments to other vendors and creditors.

Key Findings of the Study on Strategies of Managing Salary Accounts and Accounts Payable

Here are some best practices businesses should follow to responsibly manage salaries and accounts payable: Here are some best practices businesses should follow to responsibly manage salaries and accounts payable:

Salaries Management:

- Establish attainable targets about hard-gross, concerning the size and earnings of the company
- Make sure that, when calculating the payroll, stick to the payroll processing and pay date policies.
- Convey direct deposit to enhance the performance of the payroll department
- Look at the issue in terms of its relevance to the overall salary structure in the organization whenever possible
- Develop and implement uncomplicated policies and standards regarding employees’ remunerations and bonuses

Accounts Payable Management:

- All accounts receivable from AP must be recorded in an AP aging report and a payment deadline calendar must be kept.
- Accept early payment discounts where necessary
- Leverage is not good, thus do not offer credit to customers too often or accumulate too much vendor debt.
- The suppliers should adhere to the agreed contract terms and rates.
- One can also minimize the time spent on the accounts payable and automate the process.

Whereas, managing to pay employees is very crucial in ensuring that the organization continues attracting talent and to keep running while on the other hand accounts payable if not settled will erode key supplier relationships, company reputation, and creditworthiness. Budgeting these responsibilities separately, while developing internal controls, can help a business appropriately address all two types of financial obligations.

Key Takeaways

While salaries relate to employee remunerations and wages, accounts payable relate to the expenses and due amounts of the company to their vendors/suppliers. Although salaries are reported and contain a significant amount of expense, they are not technically classified as liability payments. In this context, businesses should have strategies for ensuring that there are processes and cash flows that are different for salaried and accounts payable, although both are instrumental in determining the company's finances and reputation. Notably, by understanding the difference between them, firms are placed in a better stand to plan, budget, and manage their various payables in the most effective way possible.