# Wage Expense: The Cost to Pay Hourly Employees

![Wage Expense](https://www.investopedia.com/thmb/XKMW8RaUx8KgrLJSAukDNHgzy78=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Wage-expense-4186983-FINAL-1f9fdc78768c4069b314bbabb1dd12b3.png)

*— Investopedia / Madelyn Goodnight*

## What Is a Wage Expense?

A wage expense is a type of variable cost incurred by businesses to pay their hourly employees. It may be recorded as a line item in the expense portion of the income statement.

As a matter of record-keeping, the wage expenses line item may also include the expenses of payroll taxes and employee benefits.

### Key Takeaways

*   Wage expenses are [variable costs](https://www.investopedia.com/terms/v/variablecost.asp) and are recorded on the [income statement](https://www.investopedia.com/terms/i/incomestatement.asp).
*   Under the accrual method of accounting, wage expenses are recorded when the work is performed rather than when the worker is paid. Under cash accounting, wage expenses are reported only when the worker is paid.
*   Wage expenses that are not yet paid are recorded as wages payable (a liability account) on the balance sheet.
*   Salary expenses differ from wage expenses as they are quoted as an annual cost rather than an hourly one.
*   Wage expenses may include overtime pay whereas salaried jobs do not.

## Understanding Wage Expenses

Wage expenses are sometimes reported for each department. This is usually the case when there is a production department, which often has the most hourly employees.

As an alternative, wage expenses for production workers may be added into the [cost of goods sold (COGS)](https://www.investopedia.com/terms/c/cogs.asp) item on the income statement. 

Wage expenses vary from one period to the next, depending on the number of business days in the period and the amount of overtime to be paid.

For many businesses, wage expenses increase during the winter holiday season in response to higher demand for their products. After the holiday season, companies may cut back on the number of workers as sales slow.

## Accounting for Wage Expenses

Under the [accrual method of accounting](https://www.investopedia.com/terms/a/accrualaccounting.asp), wage expenses are recorded based on when the work was performed. Under the cash method of accounting, wage expenses are recorded at the time the payments are made.

[Wages payable](https://www.investopedia.com/terms/l/liability.asp#:~:text=Wages%20Payable%3A%20The%20total%20amount,finance%20over%20short%20time%20periods.) is the line item that records how much money is owed to workers but not yet paid. When a wage expense is recorded it is a debit to the wage expenses account, which requires a credit to the wages payable account for the same amount until the wage is paid to the worker.

Wages are typically paid to a worker in the pay period following the period in which the work was performed, so there is always a delay that must be reflected in the wages payable account.

A wage expense is listed on the income statement while the wages payable account is a [liability](https://www.investopedia.com/terms/l/liability.asp) account on the [balance sheet](https://www.investopedia.com/terms/b/balancesheet.asp).

## Minimum Wage

At the least, a wage expense has to be equal to the federal government's or applicable state government's [minimum wage](https://www.investopedia.com/terms/m/minimum_wage.asp). The current federal minimum wage is $7.25 an hour and has not been raised since 2009.

Many states have implemented minimum wages that are higher than the federal minimum wage and employers in those states have to pay the higher state minimum wage.

Many companies choose to pay a higher minimum wage than the federal or state minimum wage. They include Walmart, Kroger, Target, Costco, and Amazon.

> **Important**
>
> Thirty states and the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands have minimum wages that are higher than the federal minimum wage. Twenty-one states increased their minimum wages on Jan. 1, 2025.

## Wage Expense vs. Salary Expense

Wage and salary are often used interchangeably but they refer to [different types of payments](https://www.investopedia.com/articles/personal-finance/031115/salary-vs-hourly-how-benefits-laws-differ.asp) for employment.

Wages most often mean hourly pay. The worker is paid per hour for a set number of hours per week. If they go over the set amount of hours, they are usually paid overtime. Overtime pay is typically higher than regular hourly pay; often it's 1.5x the hourly pay.

Salary refers to a set payment and is usually quoted as an annual sum rather than an hourly wage. There is no strict number of hours per week that the individual works, and overtime is rarely paid.

Salaried jobs usually also come with better benefits such as [401(k) plans](https://www.investopedia.com/terms/1/401kplan.asp), health insurance, life insurance, and [flexible spending accounts (FSAs)](https://www.investopedia.com/terms/f/flexiblespendingaccount.asp).

## Is the Minimum Wage Set by States or Cities?

All U.S. states may set their own minimum wage rates or accept the federal rate as the state's minimum. Cities and counties may impose higher rates than the state's rate.

For example, California's minimum wage is $16.50 an hour as of Jan. 1, 2025. However, some cities and counties in the state have set their rates at higher levels.

## What Is a Decent Hourly Wage Today?

The rate of $17 per hour is considered decent by some and is a federal minimum wage rate goal for certain legislators. Not surprisingly, there are big differences of opinion about what's decent. And what's paid can depend on the location of the job. For example, in California, the average hourly pay is $26. Nationwide, the average is $27.

## What Is the Median Weekly Pay in the U.S.?

The median weekly earnings of full-time wage and salary workers in the U.S. was $1,165 in the third quarter of 2024, according to the U.S. Bureau of Labor Statistics. That was an increase of 4.2% over a year earlier.

## The Bottom Line

In business and in accounting, wages and salary are two different types of expenses. Wages are hourly rates paid to workers, and they may vary seasonally along with business demand for labor.

Salary is considered an annual expense of doing business. Salaried jobs tend to be more secure and usually have better benefits than hourly work.

> **Article Sources**
>
> 1.  U.S. Department of Labor. "[State Minimum Wage Laws](https://www.dol.gov/agencies/whd/minimum-wage/state)."
>     
> 2.  Economic Policy Institute. "[Minimum Wage Tracker](https://www.epi.org/minimum-wage-tracker/)."
>     
> 3.  Business Insider. "[Retail Giants Like Walmart, Amazon, and Kroger Are Firing Shots Over Rivals' Minimum Wages. Here's Who Actually Pays $15 an Hour](https://www.businessinsider.com/walmart-amazon-kroger-pay-15-minimum-wage-taking-shots-2021-2)."
>     
> 4.  The Economic Policy Institute. "[Over 9.2 Million Workers Will Get a Raise on January 1 From 21 States Raising Their Minimum Wages](https://www.epi.org/blog/over-9-2-million-workers-will-get-a-raise-on-january-1-from-21-states-raising-their-minimum-wages/)."
>     
> 5.  U.S. Department of Labor. "[Consolidated Minimum Wage Table](https://www.dol.gov/agencies/whd/mw-consolidated#:~:text=There%20are%2030%20states%20plus,than%20the%20federal%20minimum%20wage.)."
>     
> 6.  UC Berkeley Labor Center. "[Inventory of US City and County Minimum Wage Ordinances](https://laborcenter.berkeley.edu/inventory-of-us-city-and-county-minimum-wage-ordinances/#s-2)."
>     
> 7.  Congressional Budget Office. "[How Increasing the Federal Minimum Wage Could Affect Employment and Family Income](https://www.cbo.gov/publication/55681)."
>     
> 8.  Zip Recruiter. "[Hourly Salary in California](https://www.ziprecruiter.com/Salaries/Hourly-Salary--in-California#:~:text=As%20of%20Dec%2027%2C%202024,%2875th%20percentile%29%20in%20California.)."
>     
> 9.  U.S. Bureau of Labor Statistics. "[Usual Weekly Earnings of Wage and Salary Workers Third Quarter 2024](https://www.bls.gov/news.release/pdf/wkyeng.pdf)."