DEFINITION of 'Wage Expense'
In financial accounting, wage expense represents payments made to non-manufacturing employees, regardless of whether they are hourly or salaried. Depending on the presentation, this line item may also include payroll tax expenses and other benefits paid to employees. Wage expense is recorded as a line item in the expense portion of the income statement.
BREAKING DOWN 'Wage Expense'
Under the accrual method of accounting, wage expenses are recorded based on when the work was performed. By contrast, under the cash method of accounting, wage expenses are recorded at the time cash is paid to employees.
Salaries and wages paid to manufacturing employees are not recorded as wage expense. Instead, they are allocated as part of the cost of the goods manufactured. Initially, the wages and salaries are included in inventory line on the balance sheet. Once inventory is sold, the allocated costs become part of the cost of goods sold (COGS) line item on the income statement.