Why accrued payroll matters

Understanding and tracking accrued payroll is essential for accurate financial reporting.

• It ensures expenses are matched to the correct period (accrual accounting).

• It provides a clearer picture of your company’s short-term liabilities.

• It supports transparency in payroll accounting and audit readiness.

• It helps prevent compliance or tax reporting issues related to underreported expenses.

For more on accrual accounting in the US, see the IRS definition of an accrual basis taxpayer.

How accrued payroll works

Accrued payroll is typically recorded in your books at the end of each accounting period. Here’s what it usually includes:

• Employee wages earned but unpaid

• Unpaid bonuses or commissions

• Employer payroll taxes (e.g., FICA)

• Overtime or shift differentials that haven’t been paid yet

These are listed as current liabilities on the company’s balance sheet and reversed once the payroll is actually paid out.

Example

Let’s say your company runs payroll on the 1st and 15th of each month. If employees worked through March 31st but weren’t paid until April 1st, those wages are considered accrued payroll for March.

FAQs

What’s the difference between accrued payroll and accounts payable?

Accrued payroll is a liability tied to wages; accounts payable typically relates to vendor invoices.

Is accrued payroll a liability or an expense?

It’s both — it’s an expense on the income statement and a liability on the balance sheet until paid.

When should I record accrued payroll?

At the end of every accounting period if any wages remain unpaid.

Does accrued payroll include employer taxes?

Yes — it includes the employer’s share of payroll taxes (like Social Security and Medicare).

Do I need to accrue payroll for salaried employees?

Yes — any unpaid portion of earned salary must be recorded.