How to account for a payroll advance in a company

It costs nothing to know how to account for an advance payment. In reality, it is enough to go to the BOE and look at the articles of the Law approving the General Accounting Plan. What may take more time is to realise that, If this situation has arisen, it may be that a change is needed.. But, let's take it one step at a time.

What does the General Chart of Accounts say about advances?

Royal Decree 1514/2007, of 16 November 2007, which approves the General Accounting Plan contains the information necessary 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 Chart of Accounts page.
• Go to the fourth part, where the table of accounts is displayed.
• Search for Group 4, which relates to trade payables and receivables.
• Go to heading 46, which is Personnel.
• Look there for 460, which is advance payments of remuneration.

A little further on, at the fifth part of the text of the Royal Decree, in the section devoted to definitions and accounting relationships, it is explained that how to proceed to find out how to account for an advance payment of salary. Which is as follows:

1. Be clear that an advance payment is considered for legal purposes to be a payment of remuneration on account, where the recipient is an employee of the company.
2. Differentiate the payroll advance from other loans to staff, which would be those to be included in account 544 or 254 (depending on the maturity).
3. To record the advance under current assets in the balance sheet, debiting it when the amount is paid, with a credit to accounts in subgroup 57.
4. It is credited by offsetting advances against accrued remuneration, in this case debited to subgroup 64 accounts.

How has an advance payment been accounted for?

Rather than thinking about how to account for a advance payment, If so, you may have to ask yourself why this situation has arisen.. Has an employee ever confided in you that he or she is going to be very tight at the end of the month, and has this happened to other employees before?

If posting a payroll advance is a recurring situation that affects several 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, this should be achieved at no additional cost to the company. But is this possible?

Yes, there is a solution and many companies have already resorted to it. This is flexible remuneration. Those who are familiar with it know that it increases the purchasing power of employees. 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 compensation can be several hundred euros per year.

It is a management alternative to posting a payroll advance that, without costing the organisation an extra euro, boosts staff morale and thus productivity. This improved performance results in higher profits for the business and more satisfied customers through better service.