Glossary

What is accrued payroll?

Accrued payroll is an accounting method used to track wages, salaries, bonuses, commissions, and other compensation that employees have earned but have not yet been paid. This includes additional liabilities such as overtime, paid time off (PTO), payroll taxes, and employee benefits. Think of it as keeping a detailed tally of what’s owed, even if the payments haven’t been processed yet.

Why is accrued payroll important?

Accrued payroll ensures your financial records reflect reality by recording expenses when they occur, not just when cash changes hands. This provides:

• Accuracy: A clear view of financial obligations at any given moment.
• Compliance: Ensures payroll aligns with labor laws across jurisdictions.
• Better Planning: Helps businesses budget effectively and avoid surprises.

For companies operating globally, accrued payroll is essential for navigating varying pay cycles, overtime rules, and tax requirements.

How does accrued payroll work?

At the end of an accounting period, accrued payroll accounts for unpaid amounts by tracking:

• Salaries and wages due to employees.
• Earned but unpaid bonuses and commissions.
• Employer obligations like taxes, benefits, and PTO.

For example, if an employee earns $20 per hour and works 10 hours before payday, the accrued payroll for that employee would be $200.

How do you calculate accrued payroll?

To calculate accrued payroll:

1. Determine wages owed: Multiply the employee’s hourly wage or salary by the hours worked but not yet paid.
2. Add bonuses or commissions: Include any earned amounts not yet disbursed.
3. Factor in employer costs: Add payroll taxes, benefits, or other expenses tied to employee compensation.

Let’s say your employee works 40 hours at $18/hour and earned a $100 bonus. Their gross accrued payroll is $820 ($720 wages + $100 bonus), plus additional taxes and benefits.

What are the benefits of tracking accrued payroll?

• Simplifies reporting: Records expenses when they occur, not after checks are cashed.
• Prevents errors: Reduces the risk of miscalculations in payroll processing.
• Enhances decision-making: Keeps your business up to date on financial obligations, improving resource allocation and planning.

Is accrued payroll always the best option?

Accrued payroll is particularly beneficial for larger businesses or those with complex operations across jurisdictions. However, for very small businesses or those with unpredictable cash flow, simpler cash accounting methods may suffice.

What’s the alternative?

Cash accounting is an alternative where transactions are recorded only when cash changes hands. While simpler, it can provide an incomplete picture of financial health compared to accrued payroll.

By using accrued payroll, businesses can answer the critical question: “What do we owe?” instead of “What left the account?” This mindset supports more confident planning and growth.