What is a Wage Expense?
Wage expense is the total compensation a company pays its employees during a particular accounting period.
How Does a Wage Expense Work?
The compensation a company pays its employees is treated as an expense on its income statement. The wage expense line item generally includes fixed salaries as well as hourly pay. Large companies that follow accrual accounting rules record the wage expense amount incurred during the accounting period in question. Conversely, smaller companies that follow the rules of cash accounting report only those wages actually paid during a period.
Why Does a Wage Expense Matter?
It's important to note that for manufacturing companies, the wage expense figure specifically excludes compensation paid to employees with a direct manufacturing role. These employees' compensation is reported under a company's cost of goods sold (COGS) line item.