What is accrued payroll?

What is accrued payroll?

Accrued payroll refers to the amount of wages, salaries, commissions, bonuses, and other employee-earned compensation that your company owes, but has not yet paid. This can be because the pay period has not yet ended, or because certain types of compensation (like bonuses or commissions) have been earned but not yet disbursed. It is usually recorded in accounts as a liability, as it represents money that your company is obligated to pay.

It is an important concept in accounting, as it records revenues and expenses when they are incurred — regardless of when cash is exchanged. As a result, you get a more accurate picture of your company's financial health, rather than just seeing cash inflows and outflows. This can, in turn, inform decision-making and help your business maintain a clearer understanding of its current and future financial position.

Accrued payroll is particularly significant for accounts payable (AP) and finance teams who are responsible for a global workforce. This is because employees in different countries may have varying pay cycles, holidays, overtime rules, and other factors that could affect the timing and amount of their compensation. Accrued payroll ensures these differences are accounted for, providing a consistent approach to recording wage liabilities.

The term can be used whenever there are wages that a company owes but has not yet paid out. As mentioned, this could be at the end of an accounting period when salaries are due but not yet disbursed, or when an employee earns a commission or bonus that will not be paid out until a later date. Accrued payroll might also come into play when an employee works overtime or during a holiday, earning wages that will not be paid until the next pay period.

How to calculate accrued payroll

The calculation for accrued payroll is relatively straightforward. It involves multiplying the rate of pay by the number of hours the employee has worked (but has not yet been paid for).

To do this, you need to know:

• The employee's hourly wage or salary rate

• The number of hours or days the employee worked in the pay period

• Any additional factors such as overtime, commissions, or bonuses that the employee is due but has not yet received

Using this information, you can calculate the total accrued payroll for each employee, and then add these totals to get the total accrued payroll for the entire company.

For example, if an employee earns $20 per hour, and works 10 hours, you would multiply the hourly wage by the number of hours to get the accrued payroll for that employee (i.e. $20 x 10 = $200). If you had multiple employees, you would repeat this process for each one, then add all the totals together to find the total accrued payroll.