What Your Small Business Needs to Know About Payroll Accrual

What is Payroll Accrual?

payroll accrual for your employee
The term accrual simply means accumulation. Payroll accrual refers to accrued salaries, wages, commissions, bonuses, benefits earned and payable to the employees. 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) and IRS offer detailed information on recordkeeping.

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
a liability (not expense) until the accounting period comes to a close. The term payroll accrual often refers to the wages earned by employees that are not yet 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 as various payables based on the type of the withholding; for instance, salaries and wages payable, various taxes payable, etc. Once cash payments are made to workers and third parties, the related payables are debited to decrease the liabilities.

Payroll taxes: Employers must withhold payroll taxes until such time that they are deposited, and may have other payroll liabilities that will accrue such as health care premiums or retirement payments.

Originally published June 4, 2012.

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