Payroll accruals: wages across month end, bonuses, commissions, PTO, advances, and reimbursements

If a pay period runs from the 26th to the 10th, some days worked in the first month are paid in the next. At month end, accrue the wages earned and not yet paid, along with the related employer payroll taxes. Reverse the accrual when payroll runs. Without it, the month with a pay date looks expensive and the other looks cheap.

Say an employee earns $2,000 a week and the last three working days of the month fall in an unpaid period. The accrual is $1,200 of wages plus the employer's share of payroll taxes.

A bonus earned over a performance period is a cost of that period, even if it is paid later. If a $60,000 annual bonus pool is paid in March for the prior year, accrue about $5,000 a month during the year, adjusting as results become clearer. A bonus recorded only when paid pushes the whole cost into one month.

Commissions are earned when the sale or the payment triggers them, depending on the plan. Match the commission to the revenue it relates to as far as the plan allows. Keep a schedule by salesperson of what is earned, paid, and owed. Under some accounting frameworks, the costs of obtaining a long-term customer contract can be capitalized and spread over the contract, so ask your accountant if that applies.

Accrued, unused PTO can be a liability, particularly where state law requires payout on leaving. Track each employee's balance, the pay rate, and the policy, and book the liability. The amount moves with raises, so update it at least quarterly.

Money advanced to an employee for travel or other costs is a receivable until the employee accounts for it. Record it as such, and clear it with receipts or repayment. Do not leave it in an expense account.

For reimbursements, require a receipt, a business purpose, and an approval, and pay within a set time. A reimbursement process that meets the requirements for an accountable plan keeps the payment from becoming taxable wages.