- Accrued payroll is the wages and benefits employees have earned but you have not yet paid, recorded as a liability under accrual accounting.
- In India it includes salary, overtime, bonuses, employer PF and ESI, gratuity accrual, unused leave, and TDS payable.
- Calculate it by totaling earned-but-unpaid pay plus employer contributions, less deductions, then reverse the entry once wages are paid.
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Accrued payroll is the wages and benefits your employees have earned but you have not yet paid as of a given date. Under accrual accounting, you record it as a liability so your books reflect what you owe before payday, including salary, employer PF and ESI, bonuses, and unused leave.
This guide explains what accrued payroll is, what it includes in India, and how to calculate and record it, with a worked example.
What is accrued payroll?
Accrued payroll is the total compensation employees have earned but not yet received as of a reporting date. It follows the accrual principle of recording expenses when they are incurred, not when cash is paid. Until you settle it, the amount sits on your balance sheet as a current liability.
Why does accrued payroll matter?
Accrued payroll keeps your financial statements accurate and your business audit-ready. It matches labor costs to the period when the work happened, supports reliable budgeting and cash flow, and ensures statutory dues such as PF, ESI, and TDS are accounted for even before they are paid.
- Accurate financials: it matches labor costs to the period the work happened.
- Budgeting and cash flow: you see upcoming obligations before payday.
- Compliance and audit-readiness: PF, ESI, and TDS are accounted for on time.
- Tax timing: withheld taxes are recorded in the right period.
What is included in accrued payroll in India?
Accrued payroll covers every form of earned-but-unpaid compensation. In India that includes base salary and wages, overtime, bonuses and commissions, employer statutory contributions, and the value of unused paid leave and other employee benefits.
| Component | What it includes |
|---|---|
| Salaries and wages | Earned pay for days worked but not yet disbursed. |
| Overtime | Extra hours worked and owed at the applicable rate. |
| Bonuses and commissions | Statutory or performance bonuses and commissions earned in the period. |
| Employer PF and ESI | The employer's share of Provident Fund and Employee State Insurance on earned wages. |
| Gratuity | The portion of gratuity accruing for the period, about 4.81% of basic. |
| Leave encashment (PTO) | The value of earned but unused paid leave. |
| Payroll taxes (TDS) | Tax deducted at source that is withheld but not yet deposited. |
How do you calculate accrued payroll?
Calculate accrued payroll by working out what employees have earned for the unpaid part of the period, adding employer contributions and supplemental pay, then subtracting deductions. The result is the liability you record.
Accrued payroll = gross pay + bonuses and supplemental pay + employer contributions + overtime, less deductions.
- Identify the accrual period: the days worked but unpaid as of your closing date.
- Calculate gross pay for those days (salary, or hours worked times the rate).
- Add supplemental pay earned: bonuses, commissions, and accruing gratuity.
- Add employer statutory contributions (PF and ESI) on those wages.
- Account for overtime, then subtract deductions like employee PF, TDS, and professional tax.
- Sum the components to get total accrued payroll for the period.
A simple monthly example for one employee:
- Gross pay: 160 hours at ₹200 (about $2) = ₹32,000 (about $375).
- Add bonus and supplemental pay of ₹5,000 (about $60): ₹37,000 (about $435).
- Add employer PF and ESI of ₹3,000 (about $35): ₹40,000 (about $470).
- Add overtime of ₹2,000 (about $24): ₹42,000 (about $495).
- Subtract deductions of ₹1,500 (about $18): accrued payroll of ₹40,500 (about $475).
How do you record accrued payroll?
Record accrued payroll with a journal entry that debits the payroll expense and credits an accrued payroll liability at the end of the period. When wages are actually paid in the next period, reverse the entry so the same cost is not counted twice.
- Record each component: wages, bonuses, employer contributions, taxes, and PTO.
- Keep accurate records: itemize entries and reconcile them regularly.
- Reverse the accrual: once payroll is paid, reverse the entry to avoid double-counting.
How do PF, ESI, and gratuity affect accrued payroll in India?
India's statutory contributions are a large part of accrued payroll. The employer's PF share is about 12% of basic wages, ESI adds 3.25% of wages for employees earning up to ₹21,000 (about $250) a month, and gratuity accrues at roughly 4.81% of basic. These build up alongside salary even before they are deposited, so they belong in your payroll compliance records.
How can Wisemonk help with payroll accruals in India?
Wisemonk runs payroll for global companies in India and handles accruals, statutory contributions, and compliant record-keeping as part of its EOR and payroll services, so your books stay accurate without an in-house India finance team.
Talk to our team to run accurate, compliant payroll in India.
This guide is general information as of June 2026, not accounting or legal advice. Statutory rates and rules can change; confirm current requirements or consult a qualified professional.
Frequently asked questions
What is accrued payroll?
Accrued payroll is compensation employees have earned but not yet been paid as of a given date. It is recorded as a liability under accrual accounting until it is settled.
Why is accrued payroll important for Indian businesses?
It keeps financial statements accurate, supports budgeting, and ensures statutory dues like PF, ESI, and TDS are accounted for on time, which matters for audits and compliance.
How do bonuses affect accrued payroll?
Bonuses earned in a period accrue even if they are paid later. The statutory bonus and performance bonuses are added to accrued payroll for the period in which they are earned.
How are Provident Fund (PF) and Employee State Insurance (ESI) included in accrued payroll?
The employer's PF share (about 12% of basic) and ESI (3.25% of wages for employees earning up to ₹21,000 a month) accrue on earned wages before they are deposited.
How does Wisemonk help with payroll compliance in India?
Wisemonk runs payroll, manages statutory contributions, and maintains compliant records through its EOR and payroll services, so accruals and filings stay accurate.
How does accrued payroll impact tax compliance?
TDS that is withheld but not yet deposited is part of accrued payroll. Recording it correctly keeps your tax filings and your books aligned.
Can accrued payroll include unpaid PTO?
Yes. Earned but unused paid leave (leave encashment) is an accrued liability until it is paid out or used.
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