How to account for a payroll advance in a company

The General Accounting Plan is silent on the matter of advances.

Royal Decree 1514/2007, of 16 November 2007, which approves the General Accounting Plan contains the Necessary information to know how to account for a payroll advance. To access the explanation, simply follow these steps:

• Go to the BOE online to access the General Accounting Plan page.
• Go to the fourth part, where the table of accounts is displayed.
• Search for Group 4, which relates to trade payables and receivables.
• Refer to heading 46, which is for Personnel.
• Look for 460 there, which are salary advances.

A little further on, when reaching the fifth part of the Royal Decree text, in the section dedicated to definitions and accounting relationships, it explains The procedure for knowing how to account for a payroll advance. Which is as follows:

1. Be clear that an advance payment is considered for legal purposes to be an interim payment, where the recipient is an employee of the company.
2. Distinguish between salary advances and other employee loans, which would be included in account 544 or 254 (depending on the maturity date).
3. Record the advance payment in current assets on the balance sheet, debiting it when the amount is paid, and crediting accounts in subgroup 57.
4. It is credited by offsetting advances against accrued remuneration, in this case debited to subgroup 64 accounts.

How has a payroll advance been accounted for?

Rather than thinking about how to account for a advance of remuneration, perhaps you should ask yourself why this situation has come about. Has any employee confided in you that they're going to struggle to make ends meet at the end of the month? Has this happened to other staff members before?

If accounting for a payroll advance is a recurring situation that affects different people you can consider offering a raise as in emotional wage, to avoid these kinds of worries. Or think of a way to ensure that they have more liquidity. Ideally, it would be achieved without any additional cost to the company. But is this possible?

Yes, there is a solution, and many companies have already resorted to it. This is about flexible remuneration. Those who know it understand that it allows employees to increase their purchasing power. by paying a percentage of the salary in kind, which has tax advantages as it is not subject to personal income tax. The difference in remuneration received with or without Flexible remuneration can be several hundred euros a year.

This is an alternative management approach to accounting for a payroll advance that, without costing the organisation any extra money, manages to boost staff morale and, consequently, their productivity. This improved performance leads to greater business profits and more satisfied customers due to better service.