The term accrual simply means accumulation. Accrued payroll refers to salaries, wages, commissions, bonuses, benefits earned and payable to the employees, which are neither recorded in the firm’s accounts nor paid. In simple terms, the liability arising from workers’ salary expense which has been incurred but not yet paid is called accrued payroll. The U.S. Dept. of Labor (DOL) offers detailed information on accrual reporting.
Firms often accrue payroll for services offered by workers before their payday. While withheld by the firm, the amounts are recorded by as a liability and reported as an expense to the organization. Some of the key aspects of accrued payroll are discussed below.
Salaries and wages: These refer to labor costs incurred by an organization over time, which are not paid until the scheduled periodic payday. It is essential for firms to accurately accrue all unpaid salaries and wages as an operating expense as the accounting period comes to a close. In accounting reporting, the term payroll often refers to the wages earned by employees that are yet to be paid.
Payroll liability: Until paid to workers and other third parties, accrued payroll is recorded in the balance sheet as a liability. Overall payroll liability may be recorded in the form of a variety of payables based on the type of the withholding, for instance, salaries and wages payable, various taxes payable and respective allowances payable. Once cash payments are made to workers and third parties, the related payables are debited to lower the liabilities.
Payroll expense: While accrued payroll is reported as a liability in the balance sheet, in the income statement it is recorded as an expense. An account for accrued payroll is usually called salaries and wages expense.
Payroll taxes: Employers must withhold payroll taxes until such time that they are payable, and may have other payroll liabilities that will accrue such as health care premiums or retirement payments.