Accrued payroll can be confusing, especially if you’re just trying to understand what your business actually owes and when.
Let’s break it down in simple terms so you know exactly what it is, how to calculate it, and why it matters.
Accrued payroll meaning
What is accrued payroll? Accrued payroll is the money your business owes employees but hasn’t paid yet.
The word “accrue” means to build up over time. So, accrued payroll is payroll that builds up during a pay period before payday arrives.
- For example: If you pay your employees on the 25th of each month, and today is the 24th, you’ve already built up (or accrued) nearly a full month of payroll. Once you actually pay them, it’s no longer accrued. It’s paid.
Understanding your payroll liabilities
Payroll liabilities are anything payroll-related that hasn’t been paid yet.
That includes:
- Wages owed to employees
- Taxes owed to government agencies
- Contributions owed to insurance providers, retirement plans, and more
Accrued payroll is a major part of these payroll liabilities and should be clearly documented.
Types of accrued payroll
Salaries and wages are a big part of accrued payroll. However, they’re not the only part. Anything payroll-related that’s earned but not paid yet counts as accrued payroll. The different accrued payroll meanings include:
Gross salaries and wages
This is the core of your payroll: Hourly wages and salaries. Until you pay them, they count as payroll liabilities.
Bonuses
Bonuses, like a holiday bonus or a 13th-month paycheck, also count as accrued payroll once earned but not yet paid.
Commissions
If an employee earns a commission but hasn’t been paid yet, it’s included in accrued payroll.
Employee benefits
This includes paid leave (like vacation or parental leave), health insurance, retirement contributions, and even things like commuting expenses that haven’t been reimbursed yet.
Paid time off (PTO)
In many regions, businesses are required to offer a certain amount of PTO. If an employee hasn’t used it yet, it still counts as something you owe them. It becomes part of their final paycheck if they leave as they’ve “accrued” the pay.
Income taxes and payroll taxes
You’re responsible for setting aside the right amounts for employee income/wage taxes, payroll taxes, and employer contributions. These count toward accrued payroll, too.
How to calculate accrued payroll
You can calculate an employee’s accrued payroll at any time by multiplying their hourly wage by the number of hours worked during the current pay period. From there, you’ll add any other contributions, bonuses, or pay owed.
Accrued payroll formula:
(Hourly wage x hours worked) + (bonuses + commissions + overtime) + (payroll (taxes + insurance + retirement contributions) + (unused, accrued PTO)
Let’s break it down further.
Multiply hours worked by hourly wage
For hourly employees:
Take the hours they’ve worked during the current pay period, and multiply it by their hourly rate.
For salaried employees:
Find their daily rate. Then, multiply it by the number of days they’ve worked in the current unpaid pay period.
Add in extra wages
Once you get that number, add anything they’re currently owed on top of their base wage. Bonuses, commissions, or overtime.
Factor in payroll taxes, insurance, retirement, etc.
These can vary by country or state. Regardless, add your share of insurance premiums, retirement fund contributions, and payroll taxes for the current unpaid period.
PTO
Add any PTO earned but not taken yet based on your monthly or yearly policy.
Find HR payroll integration resources to make this process easier.
Accrued payroll calculation examples
Hourly employee example
Employee #1 earns €25/hour. They work 40 hours a week. You pay them monthly. They’ve worked 2 full weeks this month so far and earned a €100 commission. You also contribute €500 to their employee benefits. They have 3 unused PTO days (8 hours/day = 24 hours) at €25/hour = €600.
Here’s the breakdown:
- (€25/hour × 40 hours) × 2 weeks = €2,000
- + €100 commission = €2,100
- + €500 benefits = €2,600
- + €600 PTO = €3,200 total accrued payroll
Salaried employee example
Employee #2 has a gross annual salary of €50,000. You have 13 pay periods each year. To calculate their daily rate, you divide their annual salary by the number of annual pay periods. Then, you divide that number by the number of working days in a given pay period.
- €50,000 ÷ 13 = €3,846 per period
- Assume there are 20 working days in this pay period: €3,846 ÷ 20 = €192/day (their daily rate)
Now, you need to calculate how much they’ve earned in the current unpaid period. You’ll multiply their daily rate by the number of days they’ve worked so far in the period.
- If they’ve worked 12 days in the current period: €192 (daily rate) × 12 (days worked) = €2,304
- Add any commissions, bonuses, or benefits to calculate the accrued payroll total.
Accrued payroll journal entry
An accrued payroll journal entry is how you record and account for employee compensation. You reverse the liability by debiting the accrued payroll and crediting cash when you pay it.
Document the full amount owed (to employees and agencies). These amounts are considered payroll liabilities until you pay them. This cycle repeats every pay period.
Why accrued payroll matters
Having the proper systems to account for these liabilities keeps your business and your people protected.
You can avoid surprise expenses
Bonuses, commissions, or an extra-long pay period can catch you off guard if you aren’t accounting for them. You might not have the cash to cover payday if you’re not tracking what’s been earned.
You can budget more accurately
Knowing exactly what you owe helps you plan your spending in other areas, like operations, marketing, or hiring.
You can reduce payroll errors
Tracking your payroll closely helps you catch mistakes early and avoid underpayments, overpayments, or compliance issues.
You can stay compliant
Accrued payroll includes taxes owed to government agencies. Staying on top of it helps you avoid penalties and ensures you’re compliant with local and global payroll regulations. This is especially important if your organisation operates internationally.
Take the guesswork out of accrued payroll
Tracking accrued payroll manually can lead to costly errors, missed payments, and compliance issues. BrynQ makes it easy to stay on top of what you owe. Track salaries, bonuses, PTO, and taxes with integrated HR and payroll tools that keep your records accurate and up to date.
See why 10,000+ users trust BrynQ to simplify payroll and stay compliant. → Request a demo
