What is accrual?

Accrual refers to the process of recording expenses or income when they are incurred or earned—not necessarily when cash is exchanged. In business accounting and payroll, “accrual” is most commonly associated with accrued wages, accrued time off, or accrued liabilities that build up over time.

For small business employers, understanding accrual is key to tracking costs accurately, managing employee benefits, and ensuring financial reports reflect the true state of the business. Whether you're offering PTO, sick leave, or overtime, tools like Homebase can automate accrual tracking and reduce manual errors.

Why accrual matters for small businesses

Accruals affect payroll, accounting, and HR in ways that directly impact your employees and financial planning. Examples include:

• Employees earning PTO or sick leave over time
  
  
• Workers accruing hours that haven’t been paid out yet
  
  
• Liabilities building up for future payments (like bonuses or taxes)
  
  
• Revenue earned but not yet collected from clients or customers
  

By tracking accruals properly, you ensure that your books reflect what your business truly owes or is owed—even if cash hasn’t changed hands yet.

Accrual in payroll

In payroll, accrual most often refers to:

1. Accrued wages

These are hours an employee has worked but hasn’t yet been paid for because the pay period hasn’t ended or payroll hasn’t been processed.

2. Accrued paid time off (PTO)

Employees may earn PTO (like vacation or sick time) gradually over time. For example, someone might accrue 1.25 vacation days per month worked. You’re responsible for tracking and honoring those balances.

3. Accrued bonuses or commissions

If a bonus or commission is earned this month but won’t be paid out until next quarter, it still counts as an accrual on your books and should be recognized as a liability.

Accrual accounting vs. cash accounting

Understanding the difference is important for how you run your books:

Most larger or growing businesses adopt accrual accounting because it gives a more accurate picture of ongoing obligations and financial health.

PTO and sick leave accruals

Many states require employers to track and pay out accrued PTO or sick leave, especially for hourly or part-time workers. Common policies include:

• Hourly accrual – Employees earn 1 hour of sick time for every 30 hours worked.
  
  
• Monthly accrual – Employees earn a set number of hours per month worked.
  
  
• Annual grant – All PTO is granted at once, but still tracked as it’s “used.”
  

Employers should clearly define how accruals are calculated, when they’re available, and if unused time rolls over or expires.

Legal and compliance considerations

Some jurisdictions mandate accrual policies for:

• Sick leave and family leave
  
  
• Paid time off minimums and rollover rules
  
  
• Final pay laws – In some states, you must pay out unused accrued PTO upon termination.
  

Failing to track and manage accruals properly can lead to wage claims, penalties, or non-compliance fines.

Best practices for managing accruals

• Automate accrual tracking – Use payroll software to calculate and log PTO, sick leave, and wage accruals in real time.
  
  
• Maintain accurate records – Store timecards, balances, and policy documentation for every employee.
  
  
• Be transparent – Show employees their current PTO or sick leave accruals on pay stubs or dashboards.
  
  
• Review and update policies – Ensure your accrual policies comply with local labor laws and reflect your company’s structure.
  
  
• Coordinate with accounting – Sync payroll and finance records to align accrual liabilities with your books.
  

How Homebase helps with accruals

Homebase Payroll tracks and automates accruals in real time—whether you’re calculating wages earned, PTO balances, or other benefits. With Homebase, you can:

• Set custom accrual rates for PTO or sick leave
  
  
• Track accrued hours automatically based on shifts worked
  
  
• Display balances on employee pay stubs
  
  
• Manage final payouts when employees leave
  
  
• Ensure compliance with local and state leave laws
  
  
• Keep clear records for audits and employee questions
  

Accruals might be “invisible” on your balance sheet, but they carry real responsibilities. Homebase helps you stay ahead of those obligations without the manual math or spreadsheets. Explore Homebase Payroll to simplify accrual tracking, automate compliance, and pay your team accurately—every time.