.png)
Payroll Accruals: End-to-End Mechanics for Period-End Close
Payroll accruals are how accountants close the gap between when work was performed and when wages are paid. For most businesses with a typical pay cadence, the gap is a few days every month — small enough to ignore on cash basis, large enough to matter once you are on accrual.
A payroll accrual recognizes wages, salaries, and related employer costs that employees have earned through period-end but will not be paid until the next pay run. It is the largest accrued liability for most operating businesses and the one teams most often handle incorrectly under time pressure.
The mechanics: at period-end, calculate the dollar value of work performed but unpaid (days worked × daily rate, by employee), debit the relevant payroll expense accounts, and credit accrued payroll. On the first day of the next period, reverse the entry so the next actual payroll run posts cleanly. The same logic applies to the employer-side payroll tax burden, accrued bonuses earned but unpaid, and accrued PTO.
Key takeaways
- ✓ Payroll accruals capture wages earned in the period but not yet paid because the pay run falls in the following period.
- ✓ The base calculation is days worked through period-end × daily wage rate, by employee, summed across the workforce.
- ✓ The accrual must include the employer-side payroll tax burden — Social Security, Medicare, FUTA, SUTA — not just gross wages.
- ✓ Accrued bonuses, commissions, and PTO are separate accruals with their own supporting schedules; they should not be lumped into accrued payroll.
- ✓ The accrual reverses on day one of the next period so the next actual payroll run can post normally.
- ✓ For businesses with stable headcount, the entry is mechanical and repeats every period — a textbook case for accrual automation.
Why payroll accruals exist
Pay periods rarely line up with calendar months. A bi-weekly pay cycle delivers wages on Friday for the two weeks ending the prior Friday. A semi-monthly cycle pays on the 15th and the last day of the month, but each pay covers work performed before the pay date. In either case, the calendar month closes somewhere in the middle of an unfinished pay period — and several days of work have been performed but not yet paid.
Under cash accounting, those days do not appear as expense until the next pay run hits the bank. Under accrual accounting, they belong to the period in which the work was performed. The payroll accrual is how the period-end close moves them into the right month.
For businesses with stable headcount, the dollar amount of the accrual is similar period over period and the calculation is mostly mechanical. The work is not difficult; the discipline of doing it every period, calculating it correctly, and reversing it on day one of the next period is what separates well-maintained books from a perennial source of variance.
What to accrue at period-end
A complete payroll accrual at period-end has four components:
- Gross wages earned but unpaid. The base case — days worked through period-end × daily wage rate.
- Employer-side payroll taxes. The portion of payroll taxes the employer pays on top of gross wages: Social Security, Medicare, federal unemployment (FUTA), state unemployment (SUTA), and any state-specific employer taxes.
- Accrued benefits. Employer-paid portions of health insurance, retirement contributions, and other benefits earned in the period but not yet remitted.
- Earned-but-undisbursed compensation. Bonuses, commissions, and incentive pay earned in the period whose payment falls in a future period.
Each component lands in its own GL account. Keeping them separated lets each piece be reconciled to its own supporting source — payroll register for gross wages, tax tables for employer taxes, benefits invoices for benefits, comp plan for bonuses.
How to calculate the accrual
The base calculation for gross wages is mechanical:
For each employee, count the days (or hours) of work performed between the last pay date and the period-end. Multiply by the daily (or hourly) wage rate. Sum across the workforce.
For salaried employees, daily rate = annual salary ÷ working days in the year (usually about 260, though some teams use 250 to exclude assumed holidays or 365 for a calendar-day basis — pick one convention and apply consistently).
For hourly employees, hours worked × hourly rate, taken from time-tracking data through period-end.
A worked example for a five-day stub at month-end, with one salaried employee at $120,000 and one hourly employee at $30/hour working 40 hours per week:
| Employee | Days worked through period-end | Daily/hourly rate | Accrued gross wages |
|---|---|---|---|
| Salaried (annual $120,000) | 5 working days | $120,000 ÷ 260 = $461.54 | $2,307.69 |
| Hourly ($30/hr, 40 hrs/week) | 40 hours (5 working days) | $30 per hour | $1,200.00 |
| Total gross wages accrued | $3,507.69 |
That figure is the accrued gross wages — not the complete accrual. Employer-side payroll taxes get layered on top.
Journal entries
Three entries cover the full payroll accrual cycle.
Entry 1: Period-end accrual. Posted on the last day of the period.
| Account | Debit | Credit |
|---|---|---|
| Wages expense | $3,507.69 | |
| Employer payroll tax expense | $268.34 | |
| Accrued payroll | $3,507.69 | |
| Accrued payroll taxes | $268.34 |
Entry 2: Reversal. Posted on day one of the next period.
| Account | Debit | Credit |
|---|---|---|
| Accrued payroll | $3,507.69 | |
| Accrued payroll taxes | $268.34 | |
| Wages expense | $3,507.69 | |
| Employer payroll tax expense | $268.34 |
Entry 3: Actual payroll run. Posted when the next payroll runs.
The actual payroll posts normally — debit wages expense, credit cash for net pay, with employer tax expense, employee tax withholdings, and benefits deductions hitting their respective accounts. Because the period-end accrual was reversed on day one, the actual payroll run lands on a clean ledger and posts the full pay period without double-counting.
Employer-side payroll taxes
The employer portion of payroll taxes is part of the accrual, not a separate problem. The same days of work that generated $3,507.69 of accrued wages also generated approximately 7.65% in Social Security and Medicare ($268.34) plus a small additional amount for federal and state unemployment depending on year-to-date wages per employee.
Two practical points:
- The employer tax burden is typically a stable percentage of gross wages — once you know the effective rate for your workforce, applying it to accrued wages takes one additional line in the calculation.
- Unemployment taxes (FUTA and SUTA) cut off at annual wage limits per employee. For employees who have already exceeded the limit in the current year, the unemployment component is zero. This matters most at year-end when many employees may be over the cap.
Accrued bonuses and commissions
Bonuses and commissions earned in the current period but paid later belong to the current period under accrual accounting. Three patterns cover most cases:
Quarterly bonuses earned ratably across the quarter, paid in the following month. Accrue one-third of the quarterly bonus pool at the end of each month inside the quarter. At quarter-end, the full quarterly bonus sits in accrued bonuses. The payment in the following month draws it down.
Annual bonuses earned ratably across the year, paid early in the following year. Accrue one-twelfth of the expected annual bonus pool each month. The accrual builds across the year; the payment in February or March of the following year settles it.
Commission earned per sale, paid the following month. Accrue earned commissions on the closing of each sale, regardless of when the payout falls. The accrual draws down as commissions are paid.
Each pattern sits in its own GL account — accrued bonuses, accrued commissions — reconciled to a separate supporting schedule.
Accrued PTO and vacation
Earned-but-unused PTO is a liability under typical employer policy. The mechanics:
- Pull the PTO accrual report from the HRIS — hours of unused PTO per employee through period-end.
- Multiply each employee's PTO hours by their fully loaded hourly cost (base hourly rate plus the employer-paid portion of taxes and benefits).
- Sum across the workforce.
- Compare to the existing accrued PTO balance. The difference is the current-period adjustment.
Unlike payroll and bonus accruals, accrued PTO is typically not fully reversed each period. It is a continuously-maintained balance that adjusts as employees earn or use PTO. The journal entry each period is the change versus the prior balance, not a full reversal.
Reconciliation to the payroll register
The reconciliation between the accrued payroll GL balance and the payroll register is the basic substantiation an auditor will ask for.
The supporting schedule lists every employee, the days worked through period-end, the daily rate, the calculated accrual, and the corresponding employer taxes. The sum equals the GL balance. The schedule is also what makes the next month's accrual easy — the inputs (employees, rates, days) change incrementally, not from scratch.
Three quick checks every period:
- Headcount on the schedule matches headcount on the payroll register.
- Daily rates derive from current compensation, not stale figures.
- The number of days accrued matches the gap between the last pay date and period-end.
Where automation helps
The payroll accrual is the case where mechanical work and high recurrence overlap most heavily. The math is the same every period; the inputs change by small amounts; the entry repeats every period. Automation that runs the calculation and posts the entry inside the GL eliminates a recurring close task without removing any judgment from the accountant's hands.
Accruer automates payroll accruals inside QuickBooks Online the same way it handles prepaid and deferred revenue. Once the accrual logic is set up with the workforce headcount, pay cadence, and employer tax rate, the monthly entry posts itself — with the reversal on day one of the next period and full substantiation in the supporting schedule. Booker handles the recurring journal entries themselves when payroll arrives in QBO from a payroll provider that needs structured allocation across classes, departments, or projects.
Common mistakes
Forgetting the employer-side tax accrual
Accrued payroll typically captures only gross wages. The employer's portion of Social Security, Medicare, FUTA, and SUTA is a separate accrual that gets missed when the calculation is rushed at period-end.
Skipping the reversal
Without the day-one reversal, the next payroll run double-counts the accrued days. The accrued payroll liability never zeroes out and the variance compounds across periods.
Using stale daily rates
Compensation changes — raises, new hires, promotions — happen between accruals. Using last quarter's rates produces an accrual that is systematically wrong.
Lumping bonuses, commissions, and PTO into accrued payroll
Each has its own supporting source and its own settlement pattern. Lumping them together makes the reconciliation harder and obscures which liability is being settled when cash moves.
Not adjusting for unemployment tax wage caps at year-end
Once an employee exceeds the FUTA or SUTA wage cap for the year, the employer tax accrual for that employee should exclude the unemployment portion. Forgetting this at year-end overstates the accrual by a small but consistent amount.
Automate the payroll accrual
Accruer handles the period-end payroll accrual and reversal inside QuickBooks Online. Set up the workforce once, and the entry posts itself every period with full substantiation. A 20-minute demo will show you exactly how it fits your close.
Book a demoFrequently asked questions
What is a payroll accrual?
A journal entry at period-end that recognizes wages, salaries, and employer-side payroll taxes earned by employees through the close date but not yet paid because the pay run falls in the following period.
How do I calculate accrued payroll?
For each employee, multiply days worked between the last pay date and period-end by the daily wage rate. Sum across the workforce. Add the employer-side payroll tax burden (typically 7.65% Social Security and Medicare, plus FUTA and SUTA where applicable).
What is the journal entry for accrued payroll?
Debit wages expense and employer payroll tax expense; credit accrued payroll and accrued payroll taxes (liabilities). Reverse the entry on day one of the next period.
Should I accrue PTO as part of payroll?
Accrued PTO is typically tracked in its own GL account — accrued vacation or accrued PTO — separate from accrued payroll. Lumping them together makes both reconciliations harder.
When should bonuses be accrued?
In the period the bonus is earned, not the period it is paid. A quarterly bonus paid in April for Q1 performance is accrued ratably across January, February, and March.
Does QuickBooks Online generate payroll accruals automatically?
Not natively. QBO posts the actual payroll runs from the payroll provider but does not generate the period-end accrual or reversal. Accruer adds this layer inside QBO.
What happens if my pay period ends on period-end?
No accrual is needed for that period — everything earned through period-end has been paid. The accrual is only required when the last pay date precedes period-end and additional days have been worked since.
Where to go next
Read these next:
- The complete accrual accounting pillar
- Accrued liabilities: a controller's working guide
- Automating accruals in QuickBooks Online
- Accrued expenses
Related Resources
Sources & References
- FASB revenue recognition guidance — see ASC 606 on fasb.org.
- IRS guidance on accounting periods and methods — see irs.gov.
- IASB revenue recognition standard under IFRS — see ifrs.org.
- AICPA, Audit and Accounting Guide.
- FinOptimal Managed Accounting practice — implementation data across 50+ client environments, 2024–2026.
.png)
.png)
.png)