Accrued payroll is pay for work done by the balance sheet date that has not yet been paid, plus the employer taxes and benefits on it. The month-end entry debits wage and payroll tax expense and credits accrued wages and accrued payroll taxes, then reverses next period or is trued up.

US payroll taxes are imposed when wages are paid, and that is what sets the December accrual apart. The usual advice is to look at each person's pay so far this year before applying a flat rate. For the last days of December, paid in a January run, that is the wrong year: every wage base has started over. Wages of higher earners who passed the Social Security base in the summer carry the full 6.2% employer tax again, and FUTA starts over on each person's first $7,000. In the worked example below, the effective employer tax rate on the accrual is 5.48% at the end of November and 8.19% at the end of December. Measured against 2026 pay, December comes out at November's rate, and accrued payroll taxes are $53,259.36 short.

Key takeaways

• Four decisions set the number: which days count, which earnings and costs go in, which employer-tax rate applies, and which pay calendar each entity runs on. Write each one down as policy.

• Set the employer-tax rate from the pay date, not the period worked. Late in the year it can sit well below 7.65%; for days paid in January it sits above it.

• Bridge the next register back to the accrual with named causes that add to the exact difference.

• PTO and bonus sit in the same close but answer to ASC 710. Their employer tax is measured at the rates expected when they are paid, which for a bonus depends on the plan terms.

The accrued payroll journal entry

The example used throughout this guide is a US company with 420 salaried employees and $2,184,000 of gross pay per biweekly period. At 30 November 2026, six of the ten weekdays in its open pay period have been worked and not yet paid. The month-end entry is:

Accrued wages are $2,184,000 times 6/10. Employer tax is 5.48% of that, not 7.65%, because 35% of the wages belong to employees who passed the Social Security wage base before the 11 December pay date. The entry reverses on 1 December, and the 11 December payroll journal then posts in full.

Every number in that entry rests on a policy decision. The sections below take them in order: what belongs in the balance, the four decisions behind the calculation, the December version of the same entry, and how to prove the estimate once the next register posts.

What goes into an accrued payroll balance

Accrued payroll liabilities cover more than unpaid salary, and each component has its own source and rule.

Employee withholdings (income tax, the employee share of FICA, benefit deductions) stay inside gross wages at accrual; the split into net pay and withholding liabilities happens when the run posts.

Accrued payroll calculation: four decisions

For each pay period still unpaid when the month closes, accrued wages equal that period's gross pay times the days of it worked by month-end, divided by the days in the period. All days are counted on one stated basis. In the example company, all gross pay is taxable wages (no pre-tax deductions), pay periods run Sunday to Saturday and are paid the following Friday, and paid holidays count as worked days. Four decisions set the result.

1. Which days count

A day basis is a policy to write down. Weekdays treat a Saturday as worth nothing; calendar days spread the period evenly across all fourteen, which suits staff who work weekends. Neither is wrong. Switching between them is. In a spreadsheet, NETWORKDAYS counts weekdays; leave paid holidays out of its holiday list, or the count drops a day that was paid.

At the end of November 2026, the example's open period runs from 22 November to 5 December and is paid on 11 December. November ends on a Monday.

• Weekday basis: 23 to 27 November and 30 November, with the Thanksgiving holiday paid, is 6 of the period's 10 weekdays. Accrued wages are $1,310,400.

• Calendar basis: 22 to 30 November is 9 of 14 days. Accrued wages are $1,404,000.

The bases differ by $93,600 for the same people in the same month. In December the gap flips: 9 of 10 weekdays are unpaid, but only 12 of 14 calendar days.

Start the count the day after the last pay period actually paid by month-end, not from the last payday. The example's last November payday, 27 November, paid the period ending 21 November, so the count starts on 22 November. Sometimes a whole period has ended by month-end and its payday falls in the next month. On this calendar that happens at six 2026 month-ends: January, February, March, April, August and September. The whole period goes into the accrual, along with any days after it. At 31 March, the period from 15 to 28 March is paid on 3 April, so it counts in full ($2,184,000). Add 30 and 31 March, 2 of the next period's 10 weekdays ($436,800), and the accrual is $2,620,800. Missing the whole period leaves two weeks of wages out.

2. Which earnings and costs go in

Salary prorates cleanly. Other earnings do not.

• Hourly pay and overtime. Prorating a prior run assumes this period's hours match last period's. Approved timecards for the stub days (the unpaid days at month-end) replace that assumption with actual hours.

• Commissions, shift premiums and other variable pay. Accrue them from the plan or source system on their own earning events. A prorated register that happened to include last month's payout is the wrong base.

• One-off items in the base run. A retroactive raise, a sign-on bonus or a final check in the run being prorated inflates every future accrual built from it. Take them out of the base before prorating.

• Employer benefits. A retirement match calculated on pay follows the accrued wages. A health premium billed by coverage month follows the month, not the payroll. Accrue each on its plan's terms if it is material.

3. Which employer-tax rate applies

Social Security, Medicare, and FUTA are imposed on wages when they are paid (IRC sections 3111 and 3301). The rates and wage bases are the ones in force on the pay date. Year-to-date pay is still the test, measured in the year of the pay date. The Supreme Court applied that rule to back wages in United States v. Cleveland Indians Baseball Co. (2001): taxed by the year paid, not the year earned. The employer rates are 6.2% for Social Security on wages up to the annual base, which is $184,500 for 2026, and 1.45% for Medicare with no base (IRS Topic 751). The base rises to $192,300 for 2027 (Journal of Accountancy). FUTA is 6.0% on each employee's first $7,000 of wages in the year, reduced to 0.6% with the full state credit (IRS Topic 759).

A flat 7.65% is right only when nobody has reached the Social Security base by the pay date and everyone's FUTA is used up. Late in the year it overstates; across year-end it understates by the FUTA that restarts.

In the example entity, 350 employees earn $4,056 per period ($105,456 a year) and never reach the base. The other 70 earn $10,920 per period ($283,920 a year) and pass $184,500 on their 17th check of 2026, paid on 21 August. Both groups exhaust FUTA by their second check of the year. The 350 lower-paid employees account for 65% of every period's gross.

• November accrual, paid 11 December 2026. Social Security applies only to the 65% of accrued wages earned by the group still below the base: $52,809.12. Medicare applies to all of it: $19,000.80. FUTA is nil. Employer tax is $71,809.92, an effective rate of 5.48%. A flat 7.65% would book $100,245.60, an overstatement of $28,435.68.

• December accrual, paid 8 January 2027. Nobody has any 2027 wages before this check, so Social Security and Medicare apply in full at 7.65%: $150,368.40.

• December FUTA. The 8 January check is everyone's first of 2027. The example applies the $7,000 cap to the December days first; spreading it across the whole check would give $294 less. The 350 accrue $3,650.40 each, inside the cap. The 70 accrue $9,828 each, capped at $7,000. FUTA wages are $1,767,640 and FUTA is $10,605.84 at 0.6%, which assumes the full state credit; an employer in a credit reduction state pays more. Employer tax for December is $160,974.24, an effective rate of 8.19%.

State unemployment tax, left out to keep the example federal, follows the same pay-date logic with each state's rate and base.

4. Which pay calendar each entity runs on

An entity that pays salaried staff up to month-end needs no salary accrual, though it may still owe overtime or commissions paid a month later. One that pays in arrears accrues every month, and so does a biweekly entity that pays after each period closes, like the example.

The example at both month-ends

The last row is the December error in one line: $160,974.24 owed against $107,714.88 booked, a $53,259.36 understatement. Even the flat 7.65% misses by $10,605.84 in December, which is exactly the FUTA that restarts in January.

The December entry, and four conventions that keep it useful

On the weekday basis, the payroll accrual journal entry for December at the US entity is:

Accrued wages and employer tax come to $2,126,574.24; benefits are left out. Four conventions keep the entry useful after it posts:

• Department or cost center on the expense lines. Map the accrual as the payroll journal maps the run, or the reversal leaves residuals in some departments and gaps in others.

• Separate liability lines. Give PTO and bonus their own accrued liability lines, apart from accrued wages and accrued payroll taxes.

• One entry per entity. Each legal entity accrues in its own currency against its own pay calendar.

• A memo that carries the policy. Day basis, period covered, pay date and tax basis belong on the entry or its support, so the reviewer can recompute it without asking.

For the pay-run journal itself (gross to net, withholdings, cash), the record-to-report guide walks through a full example. Accrual entries in general are in the definitive guide to journal entries, and the vendor side of the close is covered in automating accrued expenses journal entries.

Reversing the accrual or truing it up

When the actual payroll arrives, the accrual can be cleared in one of two ways.

Auto-reverse. The accrual reverses on day one of the following period. The payroll journal then posts in full when the run is paid, and the next period's expense is the run less the reversal. The books never split the run by period, though the tie-out still does, and any estimation error lands in the next month's ledger. That is where it posts, not necessarily where it belongs; the 8 January example below shows how to decide.

With auto-reversal, timing matters: the reversal belongs in the period of the register it anticipates, and both have to post before that period closes. In the example, the accrual is booked into December on 5 January with a 1 January reversal, three days before the 8 January register. A reversal dated a month late counts December's days twice, once in December's accrual and again in January's run. A reversal dated into December, or an accrual that misses December's lock and lands in January, leaves December without them.

Relieve and true up. The accrual stays on the books. When the run posts, the preparer clears the accrual against the run's December share and expenses the January share. Any difference between the accrual and the December share is booked as a true-up. This keeps the error visible as its own line, but it needs the run split by period every time.

Auto-reversal is the simpler choice for wages. For PTO and bonus, some teams reverse the whole balance each month and rebook it from the latest report or forecast; others post only the change. The balance sheet ends in the same place either way.

Tying the accrual to the next register

The reversal clears the balance but does not prove the estimate. The tie-out does, with checks on both sides of the posting.

Before the accrual is calculated

• If the register that crosses month-end is final before the accrual is booked, split that register by days instead of prorating the one before it.

• Confirm the register being prorated covers the period its file name says; a wrong date range gives a plausible number for the wrong month.

• Take out anything already paid inside the month: off-cycle runs, final checks, manual payments. Those were expensed when paid, and accruing them again double counts.

• Adjust the base for joiners, leavers and pay changes that it does not reflect, as far as payroll and HR know them.

After the next register posts

• Re-prorate the register employee by employee on the same day basis used for the accrual, so joiners and leavers carry only their own days.

• Compare by department, not only in total; mapping drift between accrual and register shows up there first.

Before review, tie the entry to its workpaper line by line.

The example at 8 January

The example entity booked its December accrual on 5 January, the second working day of the close, from the run paid on Thursday 24 December, a day early for Christmas. Two changes missed it. A higher-paid employee resigned with a last day of 23 December; the example's state lets final pay go out in the regular run for that period. A lower-paid employee started on 28 December. Both reached payroll on 6 January, a day after the entry was booked. The 8 January register shows both.

1. The $1,965,600 accrual reverses on 1 January.

2. The 8 January register pays $2,178,384 of salary for the period: $2,173,080 for the 419 employees who were there all period, $3,276 for the leaver's three days from 21 to 23 December, and $2,028 for the new hire's five days from 28 December.

3. The December share of that register is $1,960,670.40: 9 of 10 weekdays for the 419 ($1,955,772), all three of the leaver's days, and the new hire's four December days ($1,622.40).

4. December wages were over-accrued by $4,929.60. The accrual carried nine days for the leaver, $9,828, but only three were worked; the other six ($6,552) were never owed. Against that, the new hire's $1,622.40 of December days was missing, because the base run predates the start date.

5. January's wage expense from this run is $212,784 after the reversal, against a true January share of $217,713.60. The $4,929.60 lands in January. Employer taxes true up the same way, at the pay-date rates.

The $4,929.60 is 0.25% of accrued wages. Both causes, the leaver's last day and the new hire's start, fell in December, so the difference is evidence about conditions at 31 December. At a reporting date, ASC 855-10-25-1 recognizes a difference like that in December if it is material; one caused by a January event stays in January (25-3). Materiality rests on the entity's own thresholds, qualitative as well as quantitative, not on the percentage alone (SEC Staff Accounting Bulletin No. 99). Internal month-end packs follow the close policy.

Either way, the reviewer needs the bridge: two causes, each traced to a date in the HR record, that add to the exact difference. The two weeks before payroll heard of the leaver are a control point to raise with HR.

Why payroll expense swings from month to month

Booked on pay dates without an accrual, the example entity's wages would read $4,368,000 in September 2026 (two paydays) and $6,552,000 in October (three) for the same 420 people. With the accrual on the weekday basis, each month carries the weekdays in it: 22 in both months, or $4,804,800 each.

Besides headcount and pay changes, a correctly accrued wage line still moves for two reasons. Each belongs in the flux explanation, not in a change of day basis:

• The calendar. On the weekday basis a month carries between 20 and 23 weekdays, so February's wages run about 13% below December's with no change in pay.

• How PTO pay is booked. Where payroll charges PTO pay against the PTO liability, wage expense dips in months heavy with time off. Read the wage and PTO lines together.

When payroll runs through more than one provider or calendar

Consolidation shows why one global formula fails. Take the US entity above and add two more. The UK entity's provider pays salary for the whole month on the 25th; the India entity pays each month's salary early in the following month.

Each provider also names its earnings and deductions differently, and the general ledger knows none of those names. A slice of the mapping (codes illustrative):

Build the accrual per entity, from that entity's calendar, and maintain the mapping per provider. A new earnings code should then reach a reviewer as an unmapped item instead of landing in an account by default. The consolidated accrual can be no better than its weakest mapping.

Some payroll systems calculate the period-end accrual themselves. When one pay period runs into the next financial period, Workday can estimate the cost up to period-end (forward accruals). Oracle's payroll costing has a partial period accrual process that reverses when actual costing arrives. In a group that mixes providers, one provider's native accrual does not cover the others, so the consolidated accrual is assembled outside all of them. Maxima's answer on automating payroll accruals across countries covers the tooling side.

PTO and bonus accruals under ASC 710

PTO

ASC 710-10-25-1 sets four tests for accruing compensated absences, and all four must hold: the obligation relates to services already rendered, the rights vest or accumulate, payment is probable, and the amount can be reasonably estimated (Journal of Accountancy). Two definitions in FASB Statement No. 43 (footnotes 1 and 2) settle most cases. Rights vest if the employer must pay them even when an employee leaves. They accumulate if unused days can be carried to a later period.

Where unused days lapse at year-end, nothing is paid on departure, and practice matches the written policy, lapsed days leave no liability at year-end. State law can override a forfeiture clause; California treats earned vacation as wages that cannot be forfeited (California Labor Commissioner). Sick days that accumulate but do not vest are an exception: the employer is not required to accrue them, though it may (paragraph 7).

The month-end figure is a balance: hours outstanding times current pay. If PTO pay stays in wages when time is taken, the month's adjustment is the change in that balance. If payroll charges PTO pay against the liability, it is the change plus the time taken. The example entity, in a state that allows it, lets unused PTO carry over to the next year up to a cap. It pays nothing for unused PTO on departure, so balances accumulate without vesting. The hours below exclude hours already lapsed above the cap and are net of expected forfeitures on departure. At 31 December, with an annual divisor of 2,080 hours:

The example keeps PTO pay in wages, so December's adjustment is the $22,400 increase over the 30 November balance of $1,342,600 from the prior month's PTO report. The entry debits salaries and wages expense and credits accrued PTO. Two policy choices sit in that table. One is the divisor: 2,080 hours is 52 weeks of 40 hours. The other is whether time is valued at current pay or at the rate expected when it is taken, a question FASB Statement No. 43 left open (paragraph 20).

Employer tax on the balance belongs with it, at the rates expected when the time is taken. The lower-paid group never reaches the Social Security base. For the higher-paid group, taking time evenly through 2027 at flat pay, $192,300 of its $283,920 annual pay falls below the base. Its rate is 1.45% plus 6.2% on that share. FUTA, a few hundred dollars on PTO paid in the first checks of 2027, is left out. The $94,864.07 is the 31 December balance for PTO in accrued payroll taxes, and December's entry moves it from its 30 November level through payroll tax expense.

Bonus accrual accounting under GAAP

A cash bonus earned over the year is accrued over the service period once payment is probable and its amount estimable. "Probable" carries its ASC 450 meaning (PwC Viewpoint). When the expected payout changes with the performance outlook, the entity catches the cumulative accrual up at once or spreads the change over the remaining period, a policy choice PwC says to apply consistently. The commissions guide covers how bonuses are classified alongside commissions.

Suppose the example entity expects a $1,260,000 bonus pool for 2026, shared in proportion to pay, with any forfeited share reallocated to the others. It is paid with the 5 March 2027 run to employees still employed that day. Each month's entry debits bonus expense and credits accrued bonus for $105,000, with $8,032.50 of employer tax debited to payroll tax expense and credited to accrued payroll taxes. PwC's guide covers this case in Question PEB 6-3 (section 6.3.5). A recurring annual bonus paid in March to employees still employed then may be accrued over the 12-month year. The weeks after year-end are an administrative period for closing the books and finalizing the pool. A requirement to keep working well beyond that, as in its Example PEB 6-2, spreads the accrual over the longer service period, through the payment date. Reallocating forfeited shares also keeps the pool's cost fixed by 2026 performance, so the example accrues it over 2026.

The employer tax on the bonus follows the pay date. Anyone who leaves before 5 March forfeits their share, so the bonus becomes wages for FICA when it is paid, in 2027. By then nobody has reached the 2027 base and FUTA is used up, so employer tax on the bonus is 7.65%, or $96,390. Accrued at November's effective rate of 5.48%, it would be $69,048, short by $27,342.

Plan terms can change that answer. Under the deferred compensation timing rule (Treas. Reg. 31.3121(v)(2)-1), a formula bonus that employees have an unforfeitable right to at 31 December counts as 2026 wages, and higher earners past the 2026 base would carry Medicare only. For a bonus paid shortly after year-end, the employer can elect to treat it as wages when paid instead, if it does so for everyone in the plan and in substantially similar plans. Confirm the plan terms and any election with payroll tax before setting the rate.

Accrued payroll in NetSuite

• Reversal date and posting period. NetSuite posts the reversal to the period of its reversal date, at the original entry's exchange rate (Oracle NetSuite Help). The trap is the accrual itself: booked on 5 January, it has to be dated and posted to December, not to the period it was entered in.

• Defer Entry. Ticked, NetSuite creates the reversal as a memorized transaction on the reversal date; cleared, it enters the reversal at once with that date. The example's accrual is booked on 5 January with a 1 January reversal date, so clear the box and the reversal is entered at once, dated 1 January.

• The permanent link. The reversal follows any change to the original, so correct a posted accrual with a separate entry and each period's history stays readable.

• What the ledger shows. NetSuite should receive the accrual summarized by department or cost center. The employee-level detail stays outside the ledger for the tie-out and audit, open only to people cleared to see pay. Even summarized, a department of one or two people exposes individual pay, so decide how small departments roll up before the first entry posts.

The NetSuite account reconciliation guide covers the payroll clearing account, and the tax and benefit balances it feeds, once the run posts.

Preparing the payroll accrual with an agent

For one entity with salaried staff, a well-kept template is enough. The work grows with variable pay, the year-end tax reset, several providers and calendars, and a tie-out that has to explain every difference. Close management tools track whether that work was done. At Guild and Miro, FloQast organized the close while the accruals themselves were still built in spreadsheets. Maxima prepares the work: agent-prepared, human-reviewed, and posted to NetSuite after approval.

The calculation runs as a fixed workflow

Maxima’s journal entry automation reads the payroll systems’ own files and works from earnings codes and employer costs, not the register total. Each code is mapped to its account and entity, the partial-period accrual is computed from a formula defined in the workflow, and the reversal is scheduled with it. Every formula can be validated by hand, and the same inputs produce the same entry each month. Maxima’s integrations include Workday Payroll, ADP, Rippling, Deel and HiBob, with scheduled secure file transfer as well.

Person-level pay stays out of the ledger

Before posting, the result is aggregated by department or cost center, so individual compensation never reaches NetSuite. The employee-level workpaper stays in Maxima behind workflow-level permissions, where a reviewer or auditor can trace any line of the summarized entry back to its source rows. Guild uses those permissions to keep payroll data restricted while the process itself becomes a shared workflow. Miro’s vacation and bonus entries are prepared the same way, with employee-level detail kept out of NetSuite.

Max handles what a rule cannot

A payroll report lists “Erica B.” The HRIS that holds her department lists “Erica Bennett.” A rule sees two people, and the line falls out of the mapping. Max, Maxima’s accounting agent, can judge that they are the same employee, and when it is not clear, it asks the preparer over Slack how to proceed. The 8 January example turned on the same kind of gap: a leaver and a new hire that HR knew about and the base run did not. Max proposes its steps and a reviewer approves the plan before it starts. A step that needs a judgment goes to a person and is not assumed.

Reviewed, approved, then posted to NetSuite

Before an entry reaches the reviewer, Maxima checks that it ties to its workpaper, balances, and respects cutoff. The approver signs off inside the team’s existing roles and approval boundaries, which keeps preparer and reviewer separate. The approved entry posts directly to NetSuite with its lineage to the source files, and the reversal follows on its date.

Across countries and providers, Glean's US and India payroll uses per-source mapping, with a rule for the residual and tolerances for decimal differences. inDrive had a workflow running on its own payroll files within days. Gorgias generates and reverses its PTO entries each month from Rippling and Deel data.

What stays with the controller

The controller still owns the inputs that decide the number: the day basis, the earnings in scope, the employer-tax assumptions and materiality thresholds, and the ASC 710 judgments on PTO and bonus. Settle them in writing before year-end, whoever prepares the entry.

See how Maxima prepares payroll accrual work: bring last December's accrual workpaper, the department totals from the January register that followed it, and the tax rates you used to a demo.

Frequently asked questions

What is accrued payroll?

It is the liability for pay employees have earned but not yet received, with the employer taxes and benefits on it. It is a current liability that clears when the accrual reverses or the payroll covering those days posts.

Is accrued payroll an asset?

No. Accrued payroll is a liability: the company owes employees for work already done, and owes the employer taxes and benefits on that pay. It sits in current liabilities, and the matching debit is to wage and payroll tax expense. A payroll-related asset arises only when the company pays ahead of the work, such as a salary advance or a prepaid benefit premium

What is the accrued payroll calculation at month-end?

Multiply each unpaid pay period's gross pay by the days of it worked by month-end, divided by the days in the period, counting days on one stated basis. A period that ended by month-end but is paid after it counts in full. Then add employer taxes at the rates and wage bases in force on the pay date, and any benefits owed. For example, 6 of 10 weekdays of a $2,184,000 biweekly run is $1,310,400 of accrued wages.

What is the 2.5 month rule for accrued payroll?

It is a US tax rule, not a GAAP one. An accrual-basis employer can generally deduct compensation accrued at year-end, such as bonuses and vacation pay, in the year it was earned only if the liability is fixed by year-end and the amount is paid within two and a half months after it: by 15 March for a calendar-year company. Paid later, it is treated as deferred compensation and deducted in the year the employee is paid (IRC section 404(a)(5); Treas. Reg. 1.404(b)-1T). The rule does not change the book accrual. It creates a book-to-tax difference for anything paid after the window, so the tax team needs the payment dates behind the year-end balance.

Where does accrued wages payable sit on the balance sheet?

In current liabilities; accrued wages last only until the next run. Accrued PTO not expected to be used within a year, or a multi-year bonus, may be partly noncurrent. Once a run is processed, net pay or withholdings not yet paid or remitted move to payroll payables.

Why is the December payroll tax accrual higher than November's?

Because the December accrual is paid in January, and US employer payroll taxes follow the pay date. The Social Security and FUTA wage bases reset for wages paid from 1 January, so pay for employees who were above the base in November is taxed in full again. In the example, December also has more unpaid days, 9 weekdays against 6.

Do you still need a payroll accrual if you pay semi-monthly?

For salary paid current through the 15th and the last day of the month, usually not: no salary days are unpaid at month-end, and there are no three-payday months. Hourly pay, overtime, commissions and bonuses paid in arrears still need an accrual, and so do the employer taxes on them. Changing pay frequency is a payroll and HR decision, not a close fix.

When does a bonus have to be accrued under GAAP?

Over the period employees earn it, once payment is probable and the amount can be reasonably estimated. A change in the estimate is caught up at once or spread forward, by policy. Its employer taxes go in at the rates expected on the pay date, and the plan terms decide which tax year that is.