Payroll is a complex accounting concept that requires extreme attention and a serious expertise to manage effectively. Payroll is not only fundamental to the overall compliance, but it can also be a leverage in budgeting for the business. While payroll processing seems to be a generally known term, accrued payroll is not talked about as often.

What is accrued payroll? 

During a pay cycle, between the previous payday and the next payday, money that has not paid out yet is called accrued payroll. In other words, it is the amount of money earned since the last payday. The money, however, has not yet been distributed, hence accrued, or accumulated. 

Example. John received his last pay on June 01. His daily wage is about $100. On June 10th, he would have received $900, i.e. his accrued payroll is $900. However, the next payday is only coming on June 15th, so John is going to be paid his salary in 5 days. 

Where does the name come from? 

Across the board, the accrual basis is used widely for accounting operations, regardless of the size of the business. The approach counts factors in expenses as they are incurred (i.e. performed) and not when they are invoiced or paid for. When a business faces an expense, it is captured in an expense journal of the company. 

Example. Company ABC pays for employee parking every 3 months. A bill normally reaches the company early in the fourth month. Given that ABC uses the accrual basis, it lists the expense every month. How do they know the cost? Based on the previous 3-month period, an estimated cost can be figured. 

Accrual method vs. Cash method 

Fundamentally, the difference between the methods is in when expenses and revenues get recorded. A business that uses cash basis accounting recognizes payments when actually collected and expenses when actually incurred. 

The logic behind the approach? No money is earned unless seen in the account. Cash basis accounting is simpler, especially for small businesses, and bookkeeping is less prone to error. 

Example. Company XYZ has just completed a major sale. The money will reach its bank account in 3 months. Therefore, its records will show the revenue from the sale as belonging to 3 months ahead, i.e. when money is actually received, and not as current income. 

What else can be accrued? 

Businesses have multiple liabilities, even to its own staff. What a company owes its employees is directly related to the working hours completed so far. In fact, accrued payroll is a general term that includes more than wages and salary. The following items constitute accrued payroll: 

• Commission and bonuses. On-top compensation paid out based on KPIs is also included in accrued payroll, unless it’s paid immediately.
• Paid time off. PTO has a financial cost to it that grows as time passes. PTO remains accrued until the employee spends it during a vacation. 
• Income and payroll tax. Employers are responsible for paying income tax for their employees. The additional sum on top of the salary itself is also recorded in accruals. 
• Benefits. Supplemental pay is also reflected in the records. 

How to calculate accrued payroll? 

The first step is to sum up all outstanding payroll liabilities for the employee. Start with wages: figure out the amount of hours worked (but not yet paid) and multiply that by their hourly wage. Then, factor in supplemental pay, i.e. bonuses, commissions and overtime. Next, include employer contributions. These costs belong in accrued payroll because, although invisible to the employee, they constitute a full cost of every salary paid. Lastly, account for paid time off (PTO) the employee has earned by now. 

In essence, the equation to calculate accrued payroll is: (Hours x hourly wage) + Supplemental Pay + Payroll Tax + Employer Contributions + PTO = Accrued payroll 

Let’s see how much accrued payroll is for Alex, a sales representative. Imagine Alex earns a base salary of $3,000 per month plus a 10% commission on all sales. In January, Alex made $20,000 in sales, which means his commission was $2,000. So, their total earnings for January were $5,000.

Now, let’s say the company pays its employees on the 15th of the following month. By the end of January, Alex hasn’t received his pay yet, so the company records $5,000 as accrued payroll. This amount is considered a liability until Alex actually gets paid on February 15th.

This example helps illustrate how accrued payroll works in real life – it’s simply the wages that have been earned but not yet paid out. It’s like a placeholder in the company’s records to make sure everyone knows that money is owed and will be paid out soon.

Payroll Accruals in International Companies 

Payroll accruals are at the core of the financial wellbeing and water-tight budget planning for any business. The stakes are only higher once a company ventures out into the global market. There, an already complicated process of payroll management gets further more complicated due to multiple jurisdictions and, therefore, regulations that the business now has to comply with. Along with that, an accurate balance sheet is how a business proves it is strong and healthy. For investors, the financial paperwork is the only way to properly estimate the potential profits of investing. 

How do companies that work on a global scale build and manage accurate payroll accruals? 

Global Payroll Platforms

In essence, any global payroll platform is a cloud-based system that has multiple access points across countries. Local payroll teams and payroll managers from headquarters are able to see the data at any given time and provide relevant input from their end. In turn, the system will automatically incorporate the data into the database, thus keeping payroll accruals updated. 

To illustrate, consider GlobalSolutions – a company that relies on a global payroll platform to manage its payroll operations. Here’s how the system helps the distributed team in Brazil, Germany, India and the US file correct payroll accruals with a centralized dashboard: 

• Monday. The global payroll manager sets the gears – worked hours are automatically pulled in from time-tracking systems. 
• Tuesday. The system computes base salaries, deductions and supplemental pay in local currencies. 
• Wednesday. Teams review and confirm the data locally for bi-weekly periods in Germany, semi-monthly periods in India, and monthly accruals in Brazil. 
• Thursday. The system generates consolidated accruals, compliance reports, and final payroll data, tracking everything from US team’s $1,000,000 monthly payroll to German team’s €800,000, Indian team’s ₹50,000,000, and Brazilian team’s R$2,000,000. Throughout the process, automated compliance checks, real-time updates, and a detailed audit trail ensure data accuracy, culminating in precise payroll accruals recorded in financial statements and always-on payroll accruals available on demand. 

Employer of Record (EOR) 

Employer of Record is an organization in an overseas destination that takes on all payroll and HR management operations by creating a work contract with an employee and a service agreement with the company. Simply put, an EOR is an outsourced people department. 

Let’s look at a startup called WorldPayTech that scaled from its home base in San Francisco, US all the way to London, Great Britain and Singapore. Instead of setting up separate legal entities in each country, they partnered with an EOR provider. This allowed them to quickly onboard their first UK-based software engineer in London and a compliance specialist in Singapore who otherwise would have needed complex work visa sponsorship. The EOR handled everything from drafting locally compliant employment contracts and managing monthly payroll in two different currencies (GBP and SGD) to calculating varying tax deductions, social security contributions, and benefits enrollment. When their London employee requested time off for a family emergency, the EOR’s HR team managed the leave request and adjusted payroll accruals accordingly. Meanwhile, the startup’s leadership could receive real-time access to consolidated global payroll reports through a user-friendly dashboard that showed total labor costs, tax deductions, and benefit expenses across all locations. Payroll accruals are not only readily available any time but are also translated into the appropriate language. 

EasyStaff Payroll: Affordable, Smart and Secure for Teams and Freelancers 

Global payroll platforms and EoRs sound big, rich and simple. Is it really always sunshine and roses? Yes… and no. 

These solutions offer a centralized approach to all corporate payroll and other financial operations. The greater the team is, the less room for error there is. Partnering up with an established system is a necessity because keeping all payroll inhouse, once the company scales across the globe, is impossible. 

But what about businesses that are on the smaller side? And teams that work in a very close-knit group only occasionally reaching out into freelancers for one-off projects? They, too, need compliance and a tool to help them navigate international payroll and contractor payments. 

EasyStaff Payroll is a Lithuanian contractor payment platform that helps startups and businesses manage payments to their remote teams and freelancers. As a B2B partner, EasyStaff Payroll signs a B2B contract with the company and takes on all payments, minimizing risks for its clients. The platform distributes payments globally, while the company only engages with a single B2B contractor. Tax and legal compliance is guaranteed, and closing documents are generated for every transaction. 

Consider the story of Meadow AI – the influencer marketing platform that uses EasyStaff Payroll to streamline and optimize its payroll operations. Compliance and water-tight financial records were key to Meadow AI as they were preparing for a round of VC investment. EasyStaff Payroll not only helped them manage their payments to influencers worldwide but also provided closing documents – Meadow AI is based in Spain, and CEO Andrew shares that closing documents provided by EasyStaff are accepted by the Spanish tax office which makes their financial operations with contractors from abroad safe.

Conclusion 

• Payroll accruals, found in accrual-based accounting, are essential documents that help businesses keep track of their outstanding liabilities to their teams. 
• A payroll accrual details the amount of wages to be paid and additional payments, such as PTO, and tax deductions for a given employee. 
• For international companies, payroll accruals are challenging due to the amount of data that comes in from all its international teams. The most frequently used solutions are global payroll management software and EoR. 
• However, a major drawback with these is how expensive they are per employee and how disproportionately complex they are for young startups or small businesses. The alternative is EasyStaff Payroll – a contractor payment solution that caters to businesses, teams and freelancers worldwide. 
• EasyStaff Payroll acts as a B2B partner managed through a single contract. It distributes payments, providing closing documents for the company and its recipients. 
• EasyStaff Payroll mitigates payroll compliance risks for the business and provides the necessary contract and invoices to enable companies scale compliantly and safely into new markets.