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What is accrued payroll?

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Accrued payroll is an accounting method that tracks the accumulated and unpaid amount of salaries, wages, and other compensation employees earn during a pay period. Accrued payroll includes expenses or debits that are still pending.

What’s included in accrued payroll?

  • Salaries and hourly wages
  • Commissions
  • Bonuses (such as a 13th salary)
  • Income tax and accrued payroll taxes (federal and state income tax, employer-paid payroll taxes, and so on)
  • Social Security contributions (pension insurance, health insurance, unemployment insurance, and more)
  • Employee benefits such as annual leave or parental leave

How do employers calculate accrued payroll?

Employers will need a few calculations to calculate accrued payroll:

1. Hours worked x hourly wage = outstanding payroll

First, calculate the number of hours an employee worked. Multiply that figure by their hourly wage. This is the total amount they’re owed for a pay period.

2. Factor in bonuses, commission, and overtime

If an employee earned any bonuses or commission in addition to their regular hourly rate, add that to the total. If these bonuses, cash prizes, or commissions were immediately given to the employee, do not count these in accrued payroll.

(Hourly wage x hours worked) + (bonuses + commissions + overtime)

3. Payroll taxes (FICA), health insurance, and retirement contributions

Then, differentiate between employee contributions to FICA taxes and employer contributions to FICA taxes. The latter is part of accrued payroll; the former was already accounted for in gross pay. Add employer’s contributions to the employee’s health insurance premiums. If the employer matches retirement contributions for the employee’s 401(k) accounts, add that amount during this step.

(Hourly wage x hours worked) + (bonuses + commissions + overtime) + (payroll taxes + retirement and insurance)

4. Factor in PTO

For the last step, add the total amount the employer offers employees in monthly PTO to the accrued payroll costs. PTO that hasn’t been used yet counts, as employers owe this to employees.
The final calculation for payroll accrual looks like this:
(Hourly wage x hours worked) + (bonuses + commissions + overtime) + (payroll taxes + retirement and insurance) + (PTO) = accrued payroll amount

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