Payroll Accrual Definition

All forms of compensation owing to employees that have not yet been paid are referred to as accrued payroll. It is a source of risk for the employer. The accumulated payroll notion is only utilized in the accrual accounting system; it is not used in the cash accounting system. Salaries, wages, commissions, bonuses, and payroll taxes are the main components of accruing payroll. When a company is in a hurry to close, the payroll clerk may not want to spend the time at the conclusion of an accounting period compiling hours worked data for the accrual computation. Instead, the clerk can estimate the number of hours worked based on previous records or the typical number of working hours per day. If the actual hours worked are extremely high or low, these estimates may be off, although the difference from the estimate used in the accrued payroll amount is usually insignificant. When accrued payroll contains a payroll tax provision, keep in mind that accruals later in the calendar year may need to be lowered for payroll taxes that are capped at a specific amount of yearly wages; once that threshold is achieved, there is no additional payroll tax responsibility. Unemployment taxes, for example, are typically predicated on a modest annual pay cap that can be met in the first few months of the year. The social security tax also has a pay cap, but only the highest-paid employees are allowed to exceed it.