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If a company hasn't paid its workers their salaries, can it (the sum) be called a debt? I know the word 'arrears' can be applicable but what about 'debt'?

A company has a debt of $5 million to its employees.

Is this sentence okay (I made it up)?

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3 Answers 3

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This is a good question. A "debt" means in its broadest sense "something owed, usually but not necessarily money." Most debts incurred through a a more or less formal transaction are usually referred to by narrower words such as "loan."

However, even a formal transaction, such as an employee and employer agreeing the employee will be paid for a week's labor at the close of business on Friday, would seldom be referred to as a loan although the employer is definitely incurring a debt payable in money and tacitly agreed to by both parties. (This type of transaction is so frequent that there are specific terms to describe the debt incurred such as back wages or back pay.)

Moreover, in finance and accounting, a word frequently used for something owed is "liability," which includes loans payable, accounts payable, wages payable, etc.

So in your example, I'd probably say

The company owes five million in back wages

or

The company owes five million in wages payable

because the very general word "debt" might imply that the employees had made loans to the company in addition to working for it.

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Yes, that is legally a debt. The company has a contract with the employees. If the employees have worked but the company hasn't paid them, then a debt exists. It would be slightly unusual in everyday English in this situation. You would probably just say that "the company owes five million dollars (in back-pay)". You might describe this as a debt if you wanted to compare this sum to other debts that the company is holding. If the company goes bust, the debt to the employees is unsecured and so might never be paid.

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Accounting-wise, the money owed to employees is accounted for under the heading of Salaries and Wages. They are monies owed and are not referred to as debt in accounting. In accounting, salaries and wages are an expense on the balance sheet.

The money the company owes in wages and salaries to employees is not referred to as debt.

Salaries and wages are considered expenses in an income statement (income and expenses): they are not debt.

In accounting, debt comes under outstanding loans (which can be an asset or a liability) and other items on a balance sheet (assets and liabilities).

Debt means loans made by the company or to the company. It is not the money owed by the company to employees.

This is an accounting explanation. If conversing with someone, you could say something like: "Well, the company has a huge debt vis-a-vis its employees".

wages and salaries

A debt is owed to a lender but unpaid wages and salaries are not referred to as debt unless a person takes an employer to court. Employers don't take loans from employees and employees don't give employers loans. This money only is called a debt in court.

wages and salaries are recorded under Expenses on the Expense side of the Income Statement.**

Salaries and Wages as Expenses on Income Statement Salaries and wages of a company's employees working in nonmanufacturing functions (e.g. selling, general administration, etc.) are part of the expenses reported on the company's income statement. Under the accrual method of accounting, the amounts are reported in the accounting period in which the employees earn the salaries and wages.

On a balance sheet, unpaid wages and salaries appear indirectly under Current Liabilities:

Wages Expense is an income statement account. Wages Payable or Accrued Wages Payable is a current liability account that is reported on the balance sheet.

wages (and salaries) payable or unpaid

salaries and wages

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    – user230
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    – Lambie
    Commented Jan 28, 2020 at 4:10

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