With the rise of sophisticated Global Payroll platforms, payroll management has come a long way. Businesses can now operate across multiple countries, hire distributed teams, and navigate an increasingly complex web of compliance, taxes, and labor laws friction-free. Despite all this innovation, the foundation of payroll accounting remains rooted in long-standing principles — one of which is accrued payroll.
Accrued payroll helps companies track employee-related expenses that have been incurred but not yet paid — ensuring accurate financial reporting and better insight into labor costs. And while modern payroll tools simplify cross-border payments and compliance, understanding basic accounting concepts like accrued payroll remains essential for payroll managers working in a global context.
In this guide, we’ll break down what accrued payroll is, why it matters, and how you can manage it more effectively — especially when handling payroll for global teams. From its definition and advantages to challenges and best practices, this article will help you approach payroll with confidence while leveraging insights from experts including Anna Lettink, Global Payroll Expert and HR Tech Strategist, and Ian Giles, Global Payroll & People Leader.
What is accrued payroll?
Accrued payroll refers to the total amount of employee wages, bonuses, benefits, and other compensation that have been earned during a specific pay period but haven’t yet been paid. Since this amount is owed to employees, it’s recorded as a liability on the company’s balance sheet.
Tracking these expenses before the actual payout helps businesses better understand and manage their labor costs. It allows them to anticipate payroll outflows, allocate funds accordingly, and ensure employees are paid on time.
This method is rooted in the principles of accrual accounting, where expenses are recorded when they are incurred — not when the cash changes hands. Accrued payroll follows the same logic, helping companies maintain accurate financial records and plan ahead more effectively.
Examples of payroll accruals
Now that we’ve covered how accrued payroll works, let’s break down the specific components that typically make up these accruals. These are the items employers need to track and record, even if they haven’t been paid out yet:
- Base salary: This is the employee’s gross salary for a given period. It can be calculated on an hourly, weekly, or monthly basis, depending on the employment contract. Even if the pay date hasn’t arrived, the company must still account for the salary earned during that time.
- Income taxes: These are government-imposed taxes on individual earnings. Employers are responsible for withholding the appropriate amount from employee wages and remitting it to the tax authorities, which must also be accrued if not yet paid.
- Social security contributions: These are mandatory contributions to government-run programs that provide benefits such as pensions, unemployment support, or healthcare.
- Bonuses: Any promised bonuses, whether performance-based or discretionary, must be recorded as a liability once they’re earned — even if they will be paid at a later date.
- Commission: Sales-based compensation, such as commissions, should be accrued once the sale is closed and the employee becomes entitled to the payment, even if it’s not disbursed right away.
- Statutory leave: This includes paid or unpaid time off mandated by local labor laws, such as maternity or paternity leave, sick leave, vacation days, and bereavement leave. If an employee earns leave time during a period, the associated cost should be accounted for, even if the leave hasn’t been taken yet.
These accruals give companies a clearer picture of their payroll liabilities and ensure more accurate financial reporting. They also help businesses stay prepared for upcoming obligations and avoid surprises at payday.
Accrued payroll versus accrued wages
While the terms accrued payroll and accrued wages are often used interchangeably, there’s a slight difference in scope.
Accrued wages specifically refer to the portion of employee salaries that have been earned but not yet paid — usually the base wage or hourly pay. It’s a narrower term focused purely on regular earnings.
Accrued payroll, on the other hand, is a broader concept. It includes not just wages but also other forms of compensation like bonuses, commissions, benefits, and tax withholdings. In essence, accrued payroll encompasses all outstanding payroll-related liabilities.
Understanding the distinction can help finance and HR teams ensure accurate accounting and more comprehensive payroll reporting.
Accrued payroll alternative
The main alternative to accrued payroll accounting is the cash accounting method. Unlike the accrual approach, where expenses are recorded when they are incurred, cash accounting records transactions only when cash is actually exchanged — either received or paid out. In the context of payroll, this means employee compensation is recorded only when payments are made, not when the work is performed.
Cash accounting is straightforward and easier to manage, especially for small businesses or startups with limited resources. However, it comes with a trade-off: limited financial visibility. Since it only captures real-time cash movements, it doesn’t account for future liabilities like unpaid wages or upcoming bonuses. This can make it harder for companies to forecast cash flow, assess profitability, or plan long-term strategies accurately.
For growing businesses or those managing global teams, relying solely on cash accounting could lead to underreported expenses and misinformed decision-making. That’s why many larger or more complex organizations prefer the accrual method — it offers a more complete and forward-looking view of the company’s financial health.
As Giles says: “Payroll is not just about processing wages; it’s about demonstrating empathy and offering meaningful solutions that can alleviate financial stress.”
Advantages of tracking payroll accruals
Tracking payroll accruals offers a clearer, more accurate picture of a company’s financial responsibilities — especially when it comes to labor costs. Rather than waiting for payroll to be processed to account for expenses, the accrual method ensures all earned wages and related costs are captured in real time, even if they haven’t been paid out yet.
Here are some key advantages:
- Improved financial transparency: Accrued payroll accounting helps employers maintain a detailed view of payroll obligations. This allows businesses to understand how much they owe employees at any given time, reducing the risk of underfunding payroll or facing cash flow surprises.
- Better cash flow planning: By anticipating labor costs ahead of actual payouts, finance teams can allocate budgets more effectively. It allows for more accurate forecasting and ensures that sufficient funds are available when payday comes around.
- Accurate financial reporting: Accrued payroll improves the accuracy of financial statements, especially in reporting liabilities and operating expenses. This is essential for both internal decision-making and external reporting to investors, auditors, or regulators.
- Reduced payroll errors: By itemizing and recording payroll elements as they are earned, businesses are less likely to make mistakes — like missing bonuses, miscalculating taxes, or delaying payments. This helps maintain compliance and fosters trust with employees. “Mistakes can come with very costly fines,” says Lettink. “If you don’t pay taxes for a period of time, once you find out you’ll have to pay the taxes back AND a fine.”
- Proactive payroll management: Tracking accruals ensures that the accounting team is always a step ahead. They can quickly identify discrepancies, adjust for last-minute changes, and avoid the end-of-month scramble that often comes with reactive payroll processing.
In short, using the accrual method for payroll gives businesses a more forward-looking, organized approach to managing one of their biggest expenses — employee compensation.
How to calculate accrued payroll
Now that we’ve covered what accrued salaries are and why it matters, let’s walk through how to calculate it. This step-by-step example will help you understand how wages and benefits are recorded, even before they’re paid out.
Example scenario:
You have two employees:
- Employee A earns $15/hour and has worked 80 hours in a two-week period.
- Employee B is a salaried employee earning $3,000/month.
- Both employees are entitled to 10 paid vacation days per year.
Here’s what accrued payroll calculation looks like in this scenario:
Step 1: Determine the pay period
Establish the time frame for which wages are being calculated — this could be daily, weekly, bi-weekly, or monthly.
In this example, let’s assume the company pays employees twice a month (semi-monthly pay periods).
Step 2: Calculate employee wages
This involves determining wages earned during the pay period, whether hourly or salaried.
- Employee A: $15/hour × 80 hours = $1,200
- Employee B: $3,000 monthly salary ÷ 2 = $1,500
Step 3: Calculate employee benefits (e.g., paid leave accruals)
Estimate benefits earned during the pay period. We’ll focus on vacation accruals here.
- Employees receive 10 vacation days per year = 0.83 days/month
= 0.42 days per semi-monthly period (10 ÷ 12 ÷ 2) - Employee A earns $15/hour × 8 hours = $120/day
Vacation accrual: 0.42 × $120 = $50.40 - Employee B earns $3,000 ÷ 20 workdays = $150/day
Vacation accrual: 0.42 × $150 = $63.00
Step 4: Calculate total payroll expense
Add each employee’s wages and benefits for the period.
- Employee A: $1,200 + $50.40 = $1,250.40
- Employee B: $1,500 + $63.00 = $1,563.00
Total payroll expense for the period: $2,813.40
Step 5: Determine the accrual period
Define how often your business records payroll accruals—this could be monthly, quarterly, etc.
In this case, the company accrues payroll monthly, so we multiply the semi-monthly payroll:
$2,813.40 × 2 = $5,626.80
Step 6: Record the accrued payroll in the journal
Record the payroll expense and corresponding liability in your accounting system:
Account | Debit | Credit |
Payroll expense | $5,626.80 | — |
Accrued liabilities | — | $5,626.80 |
This journal entry reflects the company’s obligation to pay wages and benefits earned during the period, even if the actual payment hasn’t been made yet.
Manage payroll processes with Multiplier
Understanding the fundamentals of payroll accounting — like accrued compensation — is key to running a smooth and transparent payroll system. But when you’re managing teams across multiple locations, complexity increases. That’s where Multiplier steps in.
Multiplier’s Global Payroll provides a unified solution that ensures compliance, accuracy, and efficiency across all regions. From ensuring multi-country compliance to delivering real-time, actionable insights, our platform helps you stay ahead — without the hassle.
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By consolidating payroll under one platform, you not only reduce administrative burdens but also gain complete control and visibility over your workforce’s compensation. Book your demo now and see how Multiplier can help.
FAQs
Is accrued payroll a current liability?
Yes, accrued payroll is considered a current liability because it represents employee compensation that has been earned but not yet paid. Since these payments are typically due within a short period — usually by the next payroll cycle — they fall under short-term financial obligations on a company’s balance sheet.
What is the difference between accrued expenses and accrued payroll?
Accrued expenses are a broad category of costs that a company has incurred but hasn’t yet paid, including things like utilities, rent, and interest. Accrued payroll is a specific type of accrued expense that focuses solely on employee compensation, such as wages, bonuses, and benefits owed but unpaid at the end of a reporting period.
Can you deduct accrued payroll on taxes?
In many cases, yes — businesses can deduct accrued payroll expenses on their accrued taxes, provided they follow the accrual accounting method. However, eligibility depends on tax regulations in each country, and the deduction is typically only allowed if the payroll is paid within a certain time frame (e.g., within 2.5 months after year-end in the U.S.).
