Wage Expense

What is Wage Expense?

Wage expense is the payment to employees for services rendered, which is generally referred to as pay. This expense can include wages, salaries, bonuses, and commission payments made to both hourly and salaried employees. It also includes any associated payroll taxes such as social security, medical insurance, or pension contributions.

Types of Wage Expenses

Contract Wages: Contract wages are usually used for short-term projects or tasks that have specific deadlines. The employer sets a fixed fee for the job and pays it out when the task is complete—usually in one lump sum at the end of the contract period.

Time Wages: This type of wage is calculated based on the amount of time an employee works. It includes hourly wages and salaries and is typically paid on a weekly or bi-weekly basis. Employees are typically paid for the number of hours worked, including overtime if applicable, based on their hourly rate.

Piece Wages: Piece wages are calculated based on the number of pieces an employee produces. This type of pay system works well in production jobs where employees are working with a set number of items to create a completed product. The employer sets a specific rate per piece, and employees are paid according to how many pieces they produced during their shift.

Wage Expense vs Salary Expense

Wage expense is a variable-rate cost that is taken on when an employer pays their employees on an hourly basis while salary expense is a fixed-rate cost often paid to employees based on a yearly agreement. Variable wage expenses fluctuate due to the amount of work or number of hours completed by the employee, whereas fixed-salary expenses remain consistent from month to month.