What is accrued payroll?
Accrued payroll is the wages, salaries, bonuses, and payroll taxes a business owes employees for work already completed but not yet paid.
In simple terms, the money has been earned, but payroll has not been processed yet. It is recorded as a liability on the balance sheet until payment is made.
How does accrued payroll work?
Accrued payroll happens when employees have already earned pay, but payday has not arrived yet. This usually happens when the end of a pay period falls before payroll is processed.
For example, staff may work until the 31st but receive payment on the 5th of the following month. The unpaid amount is recorded as a payroll liability in the accounts until it is paid. This can include:
- Employer National Insurance contributions
Once payroll is processed and employees are paid, the accrued amount is removed from the books. This helps businesses keep their accounts accurate for each accounting period.
How is accrued payroll calculated?
Accrued payroll is usually calculated by working out how much employees have earned before payday arrives.
Example: A small UK marketing agency pays staff on the 5th of each month. One employee earns £36,000 per year, which works out to roughly £138 per working day.
By 31 March, the employee has worked 4 unpaid days that will be paid on 5 April.
Calculation:
- £138 daily wage × 4 unpaid days
The business records £552 as accrued wages and salaries in March’s accounts, even though payment happens in April.
Why accrued payroll matters for businesses
Properly recording accrued payroll helps businesses stay financially organised and avoid nasty surprises later. It gives a more accurate view of what the business truly owes employees at any given time.
Key reasons it matters:
- Keeps financial reports accurate at month-end and year-end
- Prevents wages and payroll costs from being understated
- Helps businesses track payroll liabilities properly
- Improves cash flow planning and budgeting
- Ensures accrued payroll taxes and employer NI are accounted for
- Supports cleaner bookkeeping and easier audits
- Gives business owners a clearer picture of real business performance
For SMEs, it is one of those behind-the-scenes accounting jobs that quietly keeps everything running smoothly.
Accrued payroll example
A Manchester-based retail business pays its employees on the 5th of each month. Its accounting period ends on 31 March.
Between 28 March and 31 March, staff work four days that will not be paid until 5 April. The total unpaid amount includes:
- £410 in employer National Insurance
The business records £4,930 as accrued payroll in its March accounts. Once payroll is processed in April, the liability is cleared from the books.
Accrued payroll vs accounts payable
Both accrued payroll and accounts payable are liabilities, but they cover different types of money owed. Accrued payroll relates specifically to unpaid employee pay and payroll costs, while accounts payable covers unpaid supplier invoices and business expenses.
| Feature |
Accrued Payroll |
Accounts Payable |
| Who is owed? |
Money owed to employees |
Money owed to suppliers or vendors |
| What does it include? |
Includes wages, salaries, bonuses, and payroll taxes |
Includes invoices for goods or services |
| Payment timing |
Usually short-term and tied to payroll dates |
Based on supplier payment terms |
| Managed through |
Managed through payroll accounting |
Managed through purchase and expense accounting |
Common mistakes and misconceptions
- Assuming accrued payroll only means unpaid salaries
- Forgetting to include overtime, bonuses, holiday pay, or employer NI
- Recording payroll only when employees are paid
- Leaving accrued payroll off month-end or year-end accounts
- Confusing accrued payroll with general accounts payable
- Ignoring accrued payroll taxes and pension contributions
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