What is accrued payroll?

Accrued payroll is the total employee compensation a business owes for work already done but has not yet paid as of a given date. It includes unpaid wages and salaries, bonuses and commissions, the employer's share of payroll taxes and benefit contributions, and the value of earned but unused leave. Under accrual accounting it sits on the balance sheet as a current liability, because the matching principle records labor cost in the period the work was performed, not the period the money leaves the bank.

What does accrued payroll include?

Accrued payroll is more than base wages. It captures every form of earned-but-unpaid compensation an employer is on the hook for at the close date. The main components are:

• Wages and salaries: pay earned for days or hours worked before the period closes but not yet disbursed, normally the largest component of the accrual.
• Bonuses and commissions: performance pay that has been earned but is scheduled for a later payout, accrued on a reasonable, consistent basis.
• Employer payroll taxes and contributions: the employer's share of taxes (in the US, Social Security and Medicare) and benefit contributions, accrued alongside the wages they relate to.
• Earned but unused leave: the value of accrued paid time off that can be carried forward or paid out, revalued at each close.
• Other earned benefits: any remaining unpaid benefit costs the employer is contractually obligated to settle for the period.

Together these components give you the full labor liability for the period, which is the number that belongs on the balance sheet.

Why does accrued payroll matter?

Accrued payroll matters because it keeps your financial statements honest. It records labor cost in the period the work was done, so profit is not overstated in one month and understated in the next. It also gives finance a clear view of what the business still owes, which protects cash-flow planning and keeps you compliant with accrual accounting standards.

Skip it, and two problems follow. Reported profit swings for no operational reason, and you risk spending cash that is already committed to wages. For any company reporting under GAAP, accrual accounting is required, so accruing payroll is not optional. It is the mechanism that ties labor cost to the right reporting period.

How is accrued payroll different from related terms?

Accrued payroll is easy to confuse with the other figures that move through a payroll close. The difference comes down to timing and scope: accrued payroll is what has been earned but not yet paid, payroll expense is the full labor cost of the period however it is settled, and accrued expenses is the wider bucket that holds payroll alongside rent, utilities, and every other unpaid cost.

The quick test: if the money is owed to employees for work already done and has not been paid, it belongs in accrued payroll. For a fuller set of definitions, see our payroll glossary.

How do you calculate accrued payroll?

Accrued payroll equals the gross pay employees have earned since the last payday, plus the employer's payroll taxes and contributions on that pay. You identify the working days between the last payroll run and the period-end date, value them at the pay actually earned, then add the employer's share of taxes and benefits on top.

Accrued payroll = gross pay earned since the last pay date + employer payroll taxes and contributions on that pay

Having run payroll and statutory contributions for 300+ global companies, we follow the same routine at each close. Here is a US example. Suppose five employees each earn $200 a day, and four working days fall between your last payday and month-end:

• Accrued gross wages: 5 x $200 x 4 days = $4,000
• Employer FICA at 7.65% (6.2% Social Security plus 1.45% Medicare): $306
• Employer unemployment taxes (FUTA and SUTA): about $90
• Accrued payroll at month-end: about $4,400, recorded as a current liability

Employer Social Security and Medicare rates are set by the IRS. The same routine runs at every close, whether monthly, quarterly, or at year-end.

How do you record an accrued payroll journal entry?

At period-end you debit payroll expense and credit accrued payroll, a liability account. This recognizes the cost in the correct period before any cash moves. You then clear the liability in the next period using one of two accepted methods.

Reversing entries record the accrual at period-end and automatically reverse it at the start of the next period, so the full payroll can be booked normally when it is paid. Non-reversing entries leave the accrual in place and are trued up when the actual payroll clears. Both are GAAP-compliant; the only rule is to apply one method consistently.

After the reversal, you record the actual payroll run in full when wages are paid, which avoids double-counting the cost. This is the entry most finance teams repeat at every close.

What are common accrued payroll mistakes?

Accrued payroll is rarely misunderstood and often mishandled, and the error usually surfaces at audit rather than at close. These are the pitfalls we see most often:

• Forgetting employer contributions: accruing only gross wages and omitting employer taxes understates the liability, often by a tenth or more.
• Estimating variable pay loosely: bonuses and commissions are hard to accrue precisely and need a consistent basis that will survive an audit.
• Missing the reversal: failing to reverse the accrual when wages are paid counts the same cost twice and distorts profit for the next period.
• Ignoring earned leave: leave that can be carried forward or paid out is a real obligation, and leaving it out quietly understates the liability every month.
• Multi-country drift: different pay cycles, currencies, and statutory rules make cross-border accruals hard to keep consistent from one close to the next.

Done cleanly, accrued payroll gives finance a labor cost it can trust and a cash obligation it can plan for. Done poorly, it produces restatements, audit queries, and a profit figure that moves for no operational reason.