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Accrued payroll is simply the pay your team has already earned but hasn’t hit their bank accounts yet. It is the wages, salaries, bonuses, commissions, overtime, benefits, and even payroll taxes that are owed but still in transit.
On your balance sheet, accrued payroll shows up as a liability, because under accrual accounting, expenses are logged when the work happens, not just when the money moves. From the U.S. to Europe to Asia-Pacific, most mid-to-large companies are required by law to use accrual accounting under Generally Accepted Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS), making accrued payroll the norm worldwide.
Why does this matter? Tracking accrued payroll will help you stay compliant across borders, manage cash flow with confidence, and give your people the trust and clarity they need to do their jobs well.
What Is Accrued Compensation vs. Accrued Payroll
Accrued compensation is a broad term that encompasses any form of payment that your people have already earned, but haven’t yet received. Accrued payroll is a subset of accrued compensation and is the specific term that your accounting team will use to describe the payroll-related liabilities that you owe your employees.
- Base salaries for exempt employees
- Hourly wages for non-exempt employees
- Overtime, commissions, and performance-based bonuses
- Employer contributions to benefits like health insurance, pensions, or retirement funds
What This Looks Like in Practice:
If one of your employees earns $25 per hour and works 40 hours during the last week of January, and Payroll runs on February 5 – you’ll record $1,000 in accrued compensation as of January 31.
Types of Payroll Accruals
Payroll accruals represent every dollar, hour, or benefit they’ve already earned but haven’t yet received. The way accruals are calculated depends partly on whether employees are exempt (salaried, not eligible for overtime in the U.S. and some other jurisdictions) or non-exempt (hourly or otherwise overtime-eligible).
Exempt staff typically accrue portions of their fixed salaries, while non-exempt employees’ accruals are tied to hours worked, overtime, and premiums. Together, these categories capture the different dimensions of earned but unpaid earnings.
Let’s take a look at the types you can expect to encounter:
Accrued Salaries
For exempt (salaried) employees, this is the portion of their fixed salary they’ve already worked for in the current pay period but haven’t yet received. For example, if payday falls on the 5th, but the month closes on the 31st, you’ll need to accrue for those final days of January.
Accrued Wages
For non-exempt (hourly) employees, wages are accrued by multiplying the hourly rate × hours worked. The complexity here comes with overtime, shift variations, and country-specific rules (Take for example, Mexico’s double- or triple-time overtime).
Accrued Time
Paid time off (PTO), vacation days, or even “13th month” salary entitlements in some countries are earned incrementally but often taken or paid out later. These need to be accrued so the liability that comes with owning a huge amount of wages or non-compliance, doesn’t sneak up on you.
Accrued Taxes and Deductions
Payroll accruals don’t stop at employee pay, they also include employer-side obligations like Social Security, Medicare, unemployment insurance in the U.S., or national health insurance contributions in countries like Germany and France.
Why Payroll Accrual Matters
Other than being critically important when it comes to building trust with your employees, payroll accrual affects your compliance status.
- Accurate Reporting: Without accruals, your Profit and Loss (P&L) statement paints an incomplete picture. Expenses get pushed into the wrong month, inflating profitability one period and shrinking it the next. That’s a red flag for auditors and investors alike.
- Regulatory Compliance: Wage and tax laws are strict. If you under-accrue and then miss a liability (say, underreporting social contributions in Germany), you risk fines or penalties. Regulators expect precise reporting, not estimates.
- Cash Flow Planning: Payroll is often the largest recurring expense for a business. Accruals help finance leaders anticipate future outflows, ensuring the company isn’t caught short on payday.
- Operational Clarity: Accruals allow leadership to forecast with confidence. For example, if your sales team closes a big deal in December but commissions aren’t paid until January, accruals ensure December’s financials reflect the true cost of that revenue.
Stay Ahead of Compliance Risks
Avoid the compliance missteps that trigger fines, audits, and damage your team’s trust in you. Our platform automates accruals, aligns them with local laws in 180+ countries and all 50 U.S. states, giving you full visibility into your global obligations.
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Global Comparison: Accrued Payroll vs. Alternatives
Accrued payroll is the global benchmark, simply because it’s a method that scales with compliance and builds trust in your teams. Here’s how it compares to cash accounting and a hybrid accrued model:
How Accrued Payroll Appears on a Balance Sheet
Accrued payroll sits under current liabilities. It reflects amounts due to employees and tax authorities within the next 12 months.
Take for example if you have $50,000 in wages that are unpaid at month-end, liabilities increase by that amount. When payroll runs, liabilities decrease and cash reduces.
Accrued payroll is always a liability account type. In accounting software such as QuickBooks, you assign it as a liability to track obligations accurately.
How to Calculate Accrued Payroll
Accruals can get complicated quickly, especially when variable pay, benefits, and multiple currencies are involved. Here’s a structured way to keep them consistent:
- Calculate Base Pay: Multiply hourly rate × unpaid hours, or prorate salaries for salaried employees.
- Add Variable Pay: Factor in commissions, bonuses, and overtime (watch for country-specific rules like Mexico’s multiplier rates or France’s Sunday/holiday pay premiums).
- Factor in Benefits: Include employer contributions to pensions, health insurance, or accrued PTO. For global teams, these vary dramatically. For example in the U.S. you might find employers offer a voluntary 401(k) match in the U.S. vs. a mandatory superannuation in Australia.
- Include Employer Taxes: For U.S. companies, add 7.65% FICA. Globally, equivalents like UK National Insurance or Japan’s Shakai Hoken apply.
- Record Total Liability: Post journal entries so your books reflect both the expense and the obligation.
- At Period End: Debit payroll expense, credit accrued payroll liability (records the cost in your P&L and the liability on your Balance Sheet).
- On Payday: Debit accrued payroll liability, credit cash (reverses the accrual once paid).
Accrued Payroll Example
It’s usually easier to understand a concept with a practical example. Let’s walk through one:
- Calculate Base Pay
- An employee worked unpaid hours worth $10,000 in the last days of the month.
- This is your starting point, the core wages or salaries owed.
- Add Employer Taxes
- In the US, payroll accruals must include FICA taxes (Social Security + Medicare) at 7.65% of wages.
- $10,000 × 7.65% = $765
- Globally, this step varies:
UK: National Insurance contributions
Germany: Employer pension + health contributions
Brazil: Social security at higher rates
- Factor in Benefits
- Employer-paid benefits, like health insurance, retirement contributions, or accrued PTO, add another $500 to the accrual.
- This ensures your liability reflects the true cost of labor, not just take-home pay.
- Record Total Liability
- Unpaid wages = $10,000
- Employer taxes = $765
- Benefits = $500
- Total accrued payroll = $11,265
This method ensures you don’t miss hidden liabilities that can impact your bottom line, or your compliance status.
Common Mistakes and Best Practices
Even the most experienced finance and HR teams can stumble when it comes to payroll accruals. The rules vary by country, the math gets complex fast, and small oversights can snowball into messy compliance issues.
Here are the pitfalls we see most commonly and the practices that will keep you and your team on the safe side of the tax man:
Common Mistakes
- Excluding Employer Taxes From Accruals: Forgetting employer taxes (like FICA in the US, National Insurance in the UK, or social contributions in Germany) leaves liabilities understated and exposes you to major compliance risks. If your payroll run doesn’t meet local regulations, you could face penalties, fines, more regular audits, and even criminal charges.
- Miscalculating Accrued Hours For Hourly Staff: Errors often come from overtime, shift differentials, or varying schedules. For example, in Mexico, overtime hours accrue at double or triple the normal rate. Missing this creates both financial distortions and potential legal penalties.
- Overlooking Global Compliance Requirements: Each country has its own rules for accruals, from mandatory 13th-month salaries in the Philippines to superannuation in Australia. Ignoring these differences can lead to wage disputes and government fines.
Best Practices
- Automate Payroll Accruals With Software: Manual calculations are error-prone, especially in global payroll processes. Integrated payroll systems reduce mistakes, enforce local compliance, and make reconciliation easier.
- Reconcile Accounts Monthly: Regular reconciliation ensures accruals match actual payouts and tax remittances.
- Train Finance and HR Teams on Local Rules: both your Finance and HR teams need to understand accrual obligations. It’s particularly important for HR when it comes to benefits and time off. Training both teams well will help you keep your processes compliant, even as you expand globally.
With Playroll, payroll accruals are automated, compliant, and aligned with local labor laws in 180+ countries. You save time, avoid compliance risks, and gain visibility into global labor costs.
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Accrued Payroll FAQs
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Accrued payroll is the total of wages, salaries, benefits, and taxes that employees have earned but have not yet been paid. In accounting, it’s recorded so expenses show up in the period when the work was performed and not just when the cash leaves the company.
To calculate accrued payroll, add up all the earned-but-unpaid costs of labor for the period. Start with base pay (hourly rate × hours worked, or prorated salaries). Then include variable pay like overtime, bonuses, or commissions, plus employer-paid benefits. Finally, add employer payroll taxes(e.g., 7.65% FICA in the U.S. or local equivalents worldwide).
It’s a liability account, because it represents money the company owes to employees and tax authorities. Until the payments are made, those amounts sit on the books as obligations.
On the balance sheet, accrued payroll appears under current liabilities, since these amounts (like wages, bonuses, and employer taxes) are typically due within the next 12 months.
ABOUT THE AUTHOR
Jaime Watkins
Jaime is a content specialist at Playroll, specializing in global HR trends and compliance. With a strong background in languages and writing, she turns complex employment issues into clear insights to help employers stay ahead of the curve in an ever-changing global workforce.
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