What is Accrued Payroll?

Treating your biggest liability like a rough estimate is the fastest way to muddy your financial picture.

Accrued payroll appears on your balance sheet as a major current liability alongside accounts payable and deferred revenue. Many finance teams treat it as an afterthought at month-end, but quick estimates or past numbers rarely work. Precise calculations protect your burn rate and runway. They also make conversations with your board about labor costs straightforward.

This guide acts as a shortcut to calculating accrued payroll accurately. We cover clear steps, approved methods for different compensation types, and practical solutions for common challenges. We include specific benchmarks for your pay frequency and company size. You’ll also learn how to automate accruals in Runway so you can stop manual firefighting.

What is accrued payroll and why does it matter

Accrued payroll is the employee pay, bonuses, commissions, and payroll taxes your team has already earned but that haven’t appeared in their bank accounts yet. It's your promise to pay people for work they've done. Accrued payroll sits as a current liability on your balance sheet because you owe this money for completed work.

Pay periods almost never line up with calendar months. Let's say you run payroll every two weeks and your last payday landed on January 20. On January 31, you still owe your team for January 21 through January 31. That gap is your accrued payroll.

Accrued payroll has three jobs:

• Matches expenses to the period when work happened, not just when cash moves
• Gives a complete view of labor costs every month. Payroll often makes up about 70% of your budget
• Keeps runway, burn rate, and cash flow forecasts clear and trustworthy

If you're managing the close, accrued payroll is essential. It ensures you meet IFRS and ASPE standards while satisfying your auditors. But accurate accruals do more than just follow the rules. They provide the visibility you need to support conversations about hiring, raises, and budgets with confidence.

Methodologies for calculating payroll accruals

Different kinds of compensation need different approaches. These five methods cover what you'll use most.

Standard pay period accrual

Calculate unpaid wages for the days worked between your last payroll date and the period-end. For salaried employees, divide their annual salary by 365 to find the daily rate. Multiply that figure by the accrual days. For hourly staff, estimate their hours and multiply by their expected rates.

Use this formula to calculate the total:

Accrued wages = (Annual salary / 365) × Days in accrual period

Say your last payroll was January 20 and the month ends January 31. You have 11 accrual days to account for. With a $120,000 salary, the daily rate becomes $328.77. The accrued wages for those 11 days total $3,616.47.

Bonus and variable compensation accrual

Accrue bonuses gradually throughout the year. If you have a $10,000 annual bonus tied to performance, record $833.33 each month rather than taking a hit at the end of the year.

Use this formula to calculate the monthly amount:

Monthly bonus accrual = (Annual target bonus / 12) × Estimated payout %

Estimate discretionary bonuses based on performance so far. If your team is tracking to 80% of target, accrue 80% of each month’s amount. Update the percentage as results come in.

Commission accrual

Record commissions when the deal closes, not just when you pay sales. That lines up commission expense and revenue on your books. If a deal closes in January, accrue the commission in January even if you pay in February.

Use this formula to calculate the total:

Commission accrual = Closed deal revenue × Commission rate

Your timing should match your revenue recognition policy. Stay consistent. For more on payout timing, check our commissions guide.

PTO and vacation liability

PTO functions as earned compensation you might owe in cash at termination. Multiply unused PTO days by each person’s daily rate for your monthly liability.

Use this formula to calculate the liability:

PTO liability = Total unused PTO days × Daily pay rate

For example, 10 unused days at $400 per day means $4,000 of liability for one employee. Tally this for your whole team every month. Unlimited PTO policies still create a liability in some states, so estimate based on average patterns if needed.

Fully-loaded accrual

Get the true labor cost by adding employer payroll taxes, benefits, and retirement plan matches to base pay. Include things like employer-side FICA, state unemployment taxes, health insurance premiums, and 401(k) matches.

Use this formula to capture the full cost:

Fully loaded accrual = Base wages + Employer taxes + Benefits + Retirement contributions

Our guide has the full walkthrough.

Key components and considerations

Get each moving part of your payroll accrual process right for accuracy.

Pay period mapping

Map pay period end dates and month-end close dates. Count your accrual days for each month. This number changes, especially with bi-weekly pay cycles.

Document your payroll calendar for the year, mark pay dates, and keep this handy for each close.

Daily and hourly rates

For salaried staff, use annual salary divided by 365. Some use 260 workdays, but 365 is simpler and more common. For hourly employees, estimate stub period hours. If you don’t have timesheets, use scheduled hours and true up later.

Bonus accrual strategy

Pick a method:

• Ratable: Spread expense evenly across months. Smooth and simple.
• Upon achievement: Record when team hits targets. Conservative, but results jump around.
• Probability-weighted: Adjust based on progress. Most accurate but needs good tracking.

For company-wide bonuses, ratable usually fits best. For sales bonuses, dial accruals up or down based on progress toward quota.

Commission recognition timing

Accrue commissions using the same timing as you recognize revenue. If you recognize at booking, accrue then. If you recognize as services are delivered, follow that schedule. Build in a reserve for expected clawbacks from canceled deals if needed.

PTO policy details

Pay attention to caps, carryover limits, and payout rules for each state. Update balances monthly. Most HRIS systems handle this, but always double-check before you use it in your accruals.

Employer payroll taxes

Factor in FICA (7.65%), FUTA, SUTA, and any local taxes. FICA taxes are split evenly between employer and employee. FUTA is usually 0.6% after credits. SUTA rates vary. These taxes follow the same schedule as wages. If you accrue $100,000 in wages, tack on about $7,650 for employer FICA, plus state and local taxes.

Benefits accrual timing

Some benefits are paid in advance (like health insurance), others in arrears (like 401(k) matches). Only accrue those paid in arrears. If you pay a benefit in advance, you may have a prepaid asset rather than a liability.

Contractor and freelancer treatment

Most contractors invoice after work and you pay them according to your AP process. This lands in accounts payable, not accrued payroll. If a contractor finishes work by month-end but hasn’t invoiced, estimate based on work done and accrue the expense.

Multi-state and international payroll

Different locations mean different taxes and payment schedules. Track each jurisdiction separately. For global teams, calculate in local currency, then convert using month-end rates.

Pay frequency impact

How often you pay influences accrual swings. Semi-monthly pay lands consistently. Bi-weekly leads to bigger month-to-month changes. If you pay weekly, expect even more variability. This is normal, not an error.

Benchmarks and rules of thumb

• Accrued payroll usually equals 5-15 business days of compensation expense, based on pay dates and month-end.
• One of the top three current liabilities, often bigger than $500,000 for 50 employees.
• Bi-weekly payroll can cause swings of 40-50% in your accruals month-to-month as pay dates move.
• Bonus accruals are often 10-20% of annual salary expense, recognized monthly or as targets are hit.
• Commission accruals for sales teams can run as high as 1-3 months’ worth, building up until payouts.
• PTO liability typically clocks in at 2-4 weeks of pay per person. Average vacation time is 11 days and rises with tenure.
• Add about 7.65% for FICA and 2-6% for SUTA and state unemployment. For $1 million in monthly payroll, accrue close to $100,000 for employer taxes.
• Payroll accruals are part of every monthly close. Payroll processing often takes just under 5 business days from cutoff to pay date, affecting accrual timing.
• Expect 2-5 days of team effort per close for 50-200 employees. Smaller teams finish faster, big teams need more time. Automation saves time.

Common pitfalls to avoid

• Forgetting the stub period (the days between last payroll and month end). This makes burn rate look smaller and accruals inaccurate.
• Using a rough estimate instead of calculating the real days worked. Accrual should always match the specific stub period.
• Mixing up salaries and hourly accruals. Hourly hours can swing. Keep them separate for accuracy.
• Leaving out employer payroll taxes. Every dollar of wages should have employer taxes attached.
• Accruing bonuses only when paid instead of monthly. Your income statement should show steady bonus expense, not wild swings.
• Not updating bonus accruals as performance changes. Check bonus progress monthly and adjust accruals.
• Recognizing commission expense only at payout. Match commission to the month revenue was earned.
• Using inconsistent methods for different sales plans. Standardize so you always know true commission expense.
• Skipping PTO accruals required by law. Some states require payout of unused PTO. Track rules for each office.
• Assuming unlimited PTO means no liability. You may still owe. Check state laws and estimate if needed.
• Not reversing prior accruals before booking new ones. Recalculate from scratch each month.
• Not reconciling estimate to actual payroll. Compare accruals to what you really pay after each run.
• Classifying contractors wrong. Contractor costs usually belong in accounts payable, not accrued payroll.
• Missing new hires or exits. Only include actual days worked and relevant headcount for the accrual window.
• Using last month's template. Always recalculate for headcount, pay raises, or new bonus and commission structures.
• Forgetting equity comp expense. Equity awards are separate, but need to show up with cash compensation.
• Lumping all accruals together. Segment by department or cost center for better reporting.
• Ignoring currency conversion for global payroll. Calculate in local currency and convert monthly.
• Not documenting accrual logic. Write down your process for smooth audits and board reviews.
• Missing timing differences for benefits like health insurance versus 401(k) matches. Accrue based on when the benefit is earned, not just when paid.

Impact on financial visibility and planning

Accurate payroll accruals make your monthly close trustworthy. Your income statement, balance sheet, gross margin, and net income are only as accurate as your payroll numbers. Everything from operating margin to burn rate depends on this data.

Cash flow forecasting improves when you know what payroll is coming due next. Instead of sudden swings, you’ll see smooth, real cash outflows in your forecast.

Tracking burn rate is much easier when your accruals are right. Consistent burn reveals actual changes, not reporting quirks. That means better, faster planning.

Runway depends on accurate burn rate to deliver precise runway estimates. Get the numbers right, and team leads make stronger hiring, fundraising, and budgeting decisions.

Labor cost visibility matters. With clean accruals, you see the real cost of running every department and make smart choices as you scale.

Budget variance analysis works when actuals include real accruals. You’ll spot trends as they happen, not three months later.

Compensation shows up in the right month when you follow the matching principle. That’s what accruals deliver.

Balance sheet stays honest. Every recorded obligation is up to date. No unrecorded liabilities. No surprises during audit.

Audit readiness gets easier. Documented, consistent processes lead to quick, painless audits. Auditors trust your process because you can tie estimates to reality, every time.

Working capital tracking depends on knowing what you owe right now. Accrued payroll is a key part of the puzzle.

How to track accrued payroll in Runway

Runway automates payroll accruals by pulling from your HRIS data, running the date math, and updating in real time. As your team changes, your numbers stay fresh with zero manual work.

Step 1: Connect your HRIS database

Connect with Rippling, Gusto, BambooHR or use Runway's employee database. Import base salary, start and termination dates, FTE, department, role, location, benefits % and payroll tax %. Here’s a guide to get started.

Step 2: Calculate prorated monthly salary

Add a "monthly salary (full)" field that divides base salary by 12. Then build a "prorated monthly salary" field using date functions to account for mid-month hires and exits. Use IF(), dateDiff(), daysInMonth(), and endOfMonth() for precise workdays.

Step 3: Add employer on-costs

Create an "employer on-cost %" field by adding benefits and payroll tax rates. Then multiply your prorated salary by one plus this percentage. Now you’ve got the all-in cost, not just base pay.

Step 4: Determine accrual days

Use dateDiff() to count days from your last payroll to month-end. Store pay dates in a table, then reference that for every accrual. For example, a last pay date of the 20th in a 31-day month means 11 accrual days. Multiply the daily rate by 11.

Step 5: Calculate daily rates

Annual salary divided by 365 gives you daily rate for salaried staff. For hourly, use actual or estimated hours in the stub period. Use netWorkDays() to skip weekends and holidays if needed.

Step 6: Build bonus and commission accruals

Add bonus and commission fields. For bonuses, divide the annual target by 12. Adjust for performance tracking. For commissions, tie accrual to the same period as revenue. Use dateAdd() or similar functions to match timing.

Step 7: Track PTO liability

Add PTO balance to each employee record. Multiply by daily rate, then sum for your team's total liability. Update PTO every month as it’s earned and used.

Step 8: Aggregate total accrued payroll

Pull together all components: wages, bonuses, commissions, PTO, and employer payroll taxes. That’s your total accrued payroll for the period. Segment by department or any attribute you need for forecasting better.

Step 9: Separate actuals from forecast

Use lastClose() to split actuals from forecast periods. Pull closed months from your real payroll data. Forecast future months based on current headcount and salary plans.

Step 10: Reconcile and validate

After payroll runs, compare your accrued estimate to the actual payroll. Tweak your formulas until variances regularly fall under 5%. Track variances by month and keep improving the process.

Step 11: Automate monthly updates

Once Runway connects to your HRIS, your accruals update automatically as salaries change or new people join or leave. Nothing manual. Real-time formulas keep everything current. See this guide for tracking headcount across time.

Start analysing your accrued payroll

Accrued payroll is a huge liability and a key to forecasting better. Nailing it means no surprises at close, confidence in every metric, and crystal-clear cash planning.

Runway automates payroll accruals. It hooks into your HRIS, does the date math, and surfaces updated accruals. You skip the manual headache and see actuals, scenarios, and variance by department, any way you need.

Ready to stop firefighting and start leading your next monthly close? Book a demo to see how Runway gives finance teams clear, actionable payroll accruals that keep pace as you grow.