{"id":6093,"date":"2024-09-24T09:44:19","date_gmt":"2024-09-24T13:44:19","guid":{"rendered":"https:\/\/primepay.com\/?post_type=learn&p=6093"},"modified":"2026-02-18T11:29:32","modified_gmt":"2026-02-18T16:29:32","slug":"accrued-payroll","status":"publish","type":"learn","link":"https:\/\/primepay.com\/learn\/payroll\/accrued-payroll\/","title":{"rendered":"What is Accrued Payroll?"},"content":{"rendered":"\n

Accrued payroll refers to wages and related expenses incurred by a business that have yet to be paid to employees. <\/p>\n\n\n\n

According to IRS rules, businesses that follow the Generally Accepted Accounting Principles (GAAP) in recording and reporting their finances are required to use accrual-basis accounting, as are businesses making an average of $25 million or more in sales for the preceding three years.<\/p>\n\n\n\n

Want to know more about it? You\u2019re in the right place. <\/p>\n\n\n\n

Below, we discuss the different types of payroll accrual, how to calculate them, and the benefits they provide for your organization\u2019s financial health.<\/p>\n\n\n\n

Types of Accrued Payroll<\/h2>\n\n\n\n

Understanding the accrued payroll types helps your organization adhere to its financial obligations and maintain accurate records \u2013 both important components of maintaining a financially healthy business.<\/p>\n\n\n\n

The main types are:<\/p>\n\n\n\n

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  1. Accrued wages:<\/strong> This is the most common type of accrued payroll. Accrued wages include regular pay, overtime, bonuses, and commissions that employees have earned but have not received. For example, if the payroll period ends on a Friday but employees are paid the following Wednesday, those wages are considered accrued until paid.<\/li>\n\n\n\n
  2. Accrued salaries:<\/strong> While similar to accrued wages, accrued salaries specifically refer to fixed payments made to salaried employees. If the end of the month falls on a weekend or holiday, and payment is delayed until the next business day, the salaries for that period would be accrued.<\/li>\n\n\n\n
  3. Accrued bonuses and commissions:<\/strong> Bonuses and commissions are often paid out after the period they are earned. For instance, sales commissions are typically accrued throughout the month and paid later once all sales data has been finalized.<\/li>\n\n\n\n
  4. Accrued vacation pay and sick leave:<\/strong> This accrual type involves PTO employees have earned but have not used. Companies accrue these expenses regularly, even if the employee hasn\u2019t taken the vacation or sick leave yet.<\/li>\n\n\n\n
  5. Accrued payroll taxes: <\/strong>Payroll taxes include Social Security, Medicare, and any applicable state or local taxes the employer must pay. Like wages, these taxes are considered accrued until the funds are transferred to the appropriate authorities.<\/li>\n<\/ol>\n\n\n\n
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    As you can see above, the pay period ended on 3\/25 but the pay date isn\u2019t until 3\/31 \u2013 meaning the payment is accrued. <\/em><\/p>\n\n\n\n

    How to Calculate Accrued Payroll<\/h2>\n\n\n\n

    Accurately calculating accrued payroll is essential for maintaining precise financial records and ensuring employees are paid correctly for the work they’ve completed. <\/p>\n\n\n\n

    Luckily, there\u2019s no need to bust out your old calculus book for these calculations. It just takes seven simple steps, multiplication and addition only!<\/p>\n\n\n\n

    1. Identify All Accrued Payroll Elements<\/h3>\n\n\n\n

    List all the components of accrued payroll, such as regular wages, overtime, bonuses, commissions, vacation pay, sick leave, and payroll taxes. Each element needs to be accounted for individually.<\/p>\n\n\n\n

    2. Determine the Accrued Time Period<\/h3>\n\n\n\n

    Identify the period for which the wages and expenses have been incurred but not paid. This is typically the gap between the end of the payroll period and the actual payment date.<\/p>\n\n\n\n

    3. Calculate Regular Wages<\/h3>\n\n\n\n

    Multiply the number of hours worked during the unpaid period by the hourly wage rate. For salaried employees, divide their annual salary by the number of pay periods in the year, then multiply by the fraction of the period that remains unpaid.<\/p>\n\n\n\n

    \"accrued<\/figure>\n\n\n\n

    4. Include Overtime Pay <\/h3>\n\n\n\n

    If employees worked overtime during the unpaid period, calculate overtime pay by multiplying the overtime hours by the overtime rate (usually 1.5 times the regular rate).<\/p>\n\n\n\n

    \"accrued<\/figure>\n\n\n\n

    5. Factor in Additional Pay Elements<\/h3>\n\n\n\n

    Add any accrued bonuses, commissions, vacation pay, or other compensation earned during the period. For commissions, use estimates based on sales data for the unpaid period.<\/p>\n\n\n\n

    6. Calculate Payroll Taxes<\/h3>\n\n\n\n

    Accrued payroll includes employer payroll taxes, such as Social Security, Medicare, and state taxes. To calculate these, apply the relevant tax rates to the total accrued wages.<\/p>\n\n\n\n

    \"accrued<\/figure>\n\n\n\n

    7. Add All Components<\/h3>\n\n\n\n

    Add up all the calculated amounts for wages, overtime, additional pay elements, and payroll taxes to get the total accrued payroll.<\/p>\n\n\n\n

    \"accrued<\/figure>\n\n\n\n

    Of course, there\u2019s an easier way to ensure your accounting books are accurate and you maintain compliance with accounting standards, it is called payroll software.<\/p>\n\n\n\n

    An on-demand payroll software solution<\/a> is automated ad integrates with your HR and timesheet data. This simplifies payroll tax filing and processing \u2013 all of which mitigate human errors and ensure payroll accuracy. <\/p>\n\n\n\n

    Even better, you\u2019ll save ample time so you can focus on other top priorities. Just take it from Jeff Berliner, Chief Information Officer at the Institute for Advanced Study, who reflects on his organization\u2019s switch to payroll software, \u201cThe solution\u2019s automation functionality means that activities like payroll processing and validation that used to take us 15 or 20 hours per week can now be done in a matter of minutes.\u201d<\/p>\n\n\n

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    Run Payroll with PrimePay<\/p>Explore Pricing<\/a><\/div><\/div>\n\n\n\n

    Benefits of Accrued Payroll<\/h2>\n\n\n\n

    As mentioned, payroll accrual offers several advantages that help businesses maintain accurate financial records and improve cash flow management. <\/p>\n\n\n\n

    Some key benefits are:<\/p>\n\n\n\n