Summary Definition: The total accumulated compensation an employer owes its employees but hasn't yet paid out.
Accrued payroll is the total amount of accumulated wages and benefits employees earn within specific pay periods that haven’t yet been paid out.
Until it’s paid, accrued payroll is recorded as a liability on the company's balance sheet, because it indicates the financial obligation a company has towards its employees and corresponding government agencies. This makes accrued payroll a critical component of managing an organization’s financial reporting and budgeting.
There are different forms of compensation that make up accrued payroll:
Understanding and managing accrued payroll and taxes supports legal compliance, financial management, and employee relations.
Calculating accrued payroll varies depending on employee compensation packages and applicable liabilities, but most companies use the following basic steps:
Accrued Payroll = (Hourly wage x hours worked) + (bonuses + commissions + overtime) + (Employer payroll taxes + Employer contributions) + (Accrued PTO)
Chris is a salesperson for a local beauty company and is paid every two weeks based on the hours they work, plus any commissions from their sales. Chris earns $50 per hour and receives half a vacation day every pay period.
If Chris worked 40 hours every pay period and closed three deals this week for a total commission of $900, the accrued payroll for Chris that pay period would be:
Recordkeeping requirements depend on several factors, such as company size, industry, data type, and governing agency. Here are best practices:
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