Accrued payroll is all forms of compensation owed to employees that have not yet been paid to them.
The key components of accrued payroll are:
- Payroll taxes
The amount of accrued payroll to record at the end of an accounting period is usually comprised of the compensation owed to hourly employees for the period from the last day paid through the end of the period, plus any payroll taxes related to those unpaid wages. Depending on the length of the payroll cycle, it is less common to have any accrued payroll for salaried employees, since they are frequently paid through the end of the accounting period.
When a company is engaged in a fast close, it may not want to spend the time to compile hours worked information at the end of an accounting period for its accrual calculation. Instead, it can estimate hours worked based on historical records of hours worked per day, or the standard number of working hours per day. These estimates can be incorrect if the actual hours worked are unusually high or low, but the difference from the estimate used in the accrued payroll figure is usually immaterial.