Year-to-date payroll (or YTD payroll) is a metric that businesses can use to understand how much of their total annual costs go toward paying employees. This metric can help employers build budgets, plan out their hiring for the year ahead, and understand if any staffing changes need to be made.
What you’ll learn
What you’ll learn
Updated: January 30, 2025
Key takeaways about YTD payroll
- Year-to-date payroll is the total amount a business has spent on its payroll from the beginning of the calendar or fiscal year up to either the current pay period or a specific date.
- It includes your employees’ gross income and the earnings of independent contractors and freelancers.
- YTD payroll helps businesses develop budgets, improve their financial planning, manage their tax liabilities, and forecast their hiring needs.
If you’re an HR professional, finance manager, or small business owner trying to calculate your year-to-date payroll, and unsure where to start, we cover the basics. In this guide, we explain what YTD payroll is, why some employers keep track of this metric, and how to calculate it.
What is year-to-date (YTD) payroll?
Year-to-date payroll refers to the total gross income an individual employee has earned or the business has paid in payroll from the beginning of the calendar or fiscal year up to the most recent pay period.
Some businesses use a fiscal year rather than the calendar year. In this case, the YTD payroll starts on the first day of the business’s chosen fiscal year. For example, the federal government’s fiscal year runs from October 1 to September 30, and YTD payroll calculations start on October 1.
Gross income is the total income before any taxes or deductions are taken out of a paycheck. YTD payroll can also include the amount paid to your independent contractors and freelancers.
How to calculate YTD payroll
Calculating payroll for the year to date involves adding up all the payments issued to an employee (or payments made by the employer) from the start of the calendar or fiscal year until the current pay period.
It involves calculating the total of all of the following items:
- Salaries
- Hourly wages
- Commissions
- Bonuses
- Other forms of compensation
For example, if you have one employee who earns $5,000 monthly in gross wages and has received five paychecks since January 1, your YTD payroll would be $25,000.
Note that YTD payroll includes any commissions or bonuses paid in the current year – even those earned in the previous year. For example, if your employee earned a bonus for last year, but you didn’t pay it out until January of this year, your current YTD payroll calculation would include that bonus.
Importance of accurate YTD payroll
Accurate YTD payroll calculations help businesses keep track of overall payroll costs compared to their budget.
There are three common YTD values businesses can check to get an accurate overview of an employee’s earnings and deductions:
- Gross pay: YTD gross pay is the total amount of income an employee has earned before any deductions are taken out of the paycheck from the beginning of the calendar or fiscal year up to a specific date.
- Deductions: YTD deductions are the total amount of money withheld from an employee’s pay from the beginning of the calendar or fiscal year up to a specific date. It includes calculating payroll taxes, Social Security and Medicare taxes, retirement contributions such as 401(k) plans, health insurance premiums, and other voluntary or involuntary deductions.
- Net pay: YTD net pay is the total amount of income an employee has received from the beginning of the calendar or fiscal year up to a specific date after all deductions have been subtracted from their gross pay.
To find out more about why YTD payroll can be good to pay attention to, we spoke with certified public accountant (CPA) David Kindness, who has extensive experience working with small business owners.
Why is YTD payroll important to track?
“Budgeting and expense tracking can be a frustrating and time-consuming task for many business owners – especially when they’re focused on growing their business. However, optimizing your budgets and cash flow can free up potentially significant resources to reinvest in your business.”
— David Kindness, CPA
One of the largest expenses for any growing business is their payroll. Employees and contractors are expensive, but they are integral parts of growing your business. “As a business owner, understanding your YTD, monthly, and historical annual payroll expenses can help ensure that your hiring and payroll practices are as efficient as possible,” explains David.
The more efficient your payroll is, the more bang for your buck you’ll get out of each employee and contractor – and the more you’ll be able to invest in their individual success. We asked David to go into more detail.
“Most of the time, your payroll expense is likely to be a higher percentage of your income in the earlier, high-growth years of your business,” he says. “This is because you’re investing significant resources to compete in your industry and gain market share.”
The takeaway is that once you’ve achieved that market share, your YTD payroll expenses are likely to make up a lower percentage of your income. To take this a step further, we asked David to illustrate how this could play out in a specific scenario.
Why YTD payroll matters: Sample scenario
“Let’s say it’s October, and you’re building a budget for next year. You haven’t been tracking your YTD payroll, but you estimate it’s about $45,000. You build out your budget and determine that you’ll have $13,000 to reinvest in your business next year — not bad! You start investing that money right away.
Now, let’s switch the example slightly and say that you use OnPay to track your payroll, and it tells you that your YTD payroll is actually only $34,500 – $10,500 less than you thought. As a result, you realize that you actually have up to $23,500 in your budget to reinvest in your business. That additional funding fuels your growth, allows you to bring on new talent, and allows you to compete more effectively in your industry.”
David Kindness, CPA and OnPay expert contributor
Moving on, let’s cover some of the potential results when keeping up with this metric.
Implications of YTD payroll for employers
YTD payroll calculations can impact your business operations in three major ways.
Budgeting and financial planning
YTD payroll gives businesses an easy way to track how much they spend on employee payroll compared to their budget and other business expenses. Reviewing YTD payroll data also helps you forecast your spending and see if you are on track to meet your initial budget.
For example, if your YTD payroll is higher than initially budgeted, you may have to reduce expenses elsewhere. You can also compare it to previous years’ YTD payroll numbers and see if your payroll is increasing or decreasing relative to the same past period. For instance, if you notice a trend that during the holiday season, your business has higher payroll expenses, you can increase your budget for payroll expenses as necessary.
Tax liability management
You can use YTD payroll to more accurately calculate your yearly tax liabilities. Use it to predict the potential quarterly and annual taxes you have to pay, as well as manage your overall cash flow. For example, if your YTD payroll is higher than expected, it means you will have a larger payroll tax liability. Your income taxes, on the other hand, may actually decrease because higher-than-expected payroll expenses will decrease your taxable income. Understanding this allows you to plan ahead and set aside the necessary funds to cover your taxes.
Hiring decisions
Understanding YTD payroll gives your business a clearer picture of your payroll costs and helps you make decisions on hiring, firing, or making pay adjustments. Say your YTD payroll is higher than expected. You can reduce overtime hours, negotiate better pay rates with your independent contractors or employees, or put off hiring more employees until the following year.
Best practices for YTD payroll management
Next, let’s go over a few tips that will help you manage your YTD payroll more effectively and efficiently.
Generating accurate pay stubs
Pay stubs should include complete YTD information, including gross pay, deductions, and net pay. This transparency not only ensures compliance with labor laws but also helps your employees better understand their earnings and withholdings. Your employees should be able to view their pay stubs digitally or physically.
Maintaining compliance during year-end payroll
Employers must accurately report employee earnings and taxes throughout the year, not just at tax time. By staying on top of your YTD payroll, you can make sure you’re meeting all compliance requirements and avoid potential penalties or fines. It’s important to double-check your YTD payroll numbers with your bookkeeping records and reconcile any inconsistencies.
Leveraging payroll software and tools
Doing your payroll by yourself from start to finish is time-consuming and prone to mistakes. This is where using a payroll software platform can help. By automating the process, you can easily track YTD payroll figures and generate accurate budgeting reports for your analysis.
Year-to-date payroll is worth paying attention to
With the right tools, you can streamline your business’s processes and focus on growing your business while still maintaining accurate YTD payroll records. That’s where payroll software comes in. It can save you significant time, money, and stress when it comes to running payroll, withholding taxes, paying payroll taxes, and more.
See how OnPay’s award-winning software platform has built-in features that accurately calculate your YTD payroll while making sure you are compliant with tax laws, generate valuable reports, and utilize online portals that provide employees with self-service options.
Take a tour to see how easy payroll can be.
Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.