An accrual refers to any employee compensation, such as wages, salaries, and benefits, as well as any other associated payroll costs that a company owes but has not yet paid. This reflects the expenses incurred during a period if a payment hasn’t yet been made. 

Generally speaking, accruals in payroll are recorded to comply with the accrual basis of accounting, whereby expenses are reported when incurred and not when paid. This practice helps to ensure that companies accurately report their labor costs for the sake of keeping consistent financial records at all times. 

According to the Bureau of Labor Statistics, wages and salaries in the United States averaged $39.42 in 2025 and accounted for 61.6 percent of employer costs.

How Can I Calculate Accrued Payroll?

Calculating accrued payroll can be especially important towards the end of the accounting period, and simplifying your formula for working out the compensation owed to employees can not only help with compliance but will also ensure that your employees collect the remuneration they expect. 

  1. Calculate your employee’s gross wages. Hourly pay can be worked out by multiplying the employee’s hourly rate by the hours worked. There are plenty of automated solutions to help you calculate gross wages efficiently.
  2. Add employee additions such as commission, bonuses, and supplementary pay for the period to total wages.
  3. Include deductions such as pension contributions, tax, and health insurance.
  4. Add all the money earned by employees through gross wages and additions together before subtracting any deductions.

This step-by-step process allows you to accurately determine the amount of money that you owe each employee while considering the deductions you’ll need to take into account.

How to Manage Accrued Payroll

When keeping on top of accrued payroll, it’s important to minimize errors while generating a clear paper trail that would stand up to the scrutiny of an independent audit. With this in mind, best practices to manage accrued payroll include:

Maintaining Accurate Records

Be sure to keep a record of all calculations and entries you make into the company’s books to ensure you have all the information you need when it comes to auditing. Taking this measure will also help you to adhere to compliance standards.

Keeping Discrepancies to a Minimum

Manual data collection and recording run the risk of errors and discrepancies emerging from your record-keeping. However, there are many great electronic record-keeping tools that can help to support your calculations, ranging from employee gross pay to contributions and deductions. 

These tools mean you won’t have to populate a spreadsheet for many hours, and instead, you can ensure accuracy through automatic data uploading and regular audits to support accuracy.

Managing Accruals

Accrued payroll is a common occurrence when running a business, and managing it accordingly means that you can keep track of all employee expenses.

Managing your accruals means that you can access a breakdown of where money is going for a specific pay period, as well as record a liability on the balance sheet that represents the employee wages that are yet to be paid. 

By keeping track of accruals, you can prevent running into financial problems and legal penalties by failing to pay your workers the money that they’re owed or by inadvertently delaying their full payments.

FAQs

Yes, you can generally deduct accrued payroll from taxes as an incurred expense, even if the sums are yet to be paid. However, it’s worth checking your local and state tax laws in case some variations exist.

Accrued payroll can increase based on nuances like overtime worked or sick leave, making it more difficult for employers to accurately record how much is owed. Other factors, like bonuses and hourly wages, can mean some businesses with manual payroll systems may end up underpaying or overpaying their workers.

Accrued payroll monitors cash flow, prevents unexpected costs throughout each stage of the labor process, from gross wages to overtime pay and bonuses. This means that you remain fully aware of these incoming expenses and are able to take measures to pay workers without running into liabilities.