Payroll reconciliation

Payroll reconciliation is the process of reviewing and verifying payroll data to ensure everything aligns correctly before finalizing employee payments. This includes checking gross wages, deductions, taxes, and net pay. Reconciling payroll regularly helps catch discrepancies early and prevent costly errors such as incorrect paychecks or tax filing mistakes.

Why Payroll Reconciliation Matters

Even though it can be a meticulous task, payroll reconciliation is essential for several key reasons:

• Accuracy: Ensures employees receive correct and timely compensation.
• Regulatory compliance: Identifies and fixes issues with tax withholdings and wage calculations, helping meet federal, state, and local requirements.
• Fraud prevention: Can uncover unauthorized changes or suspicious activity within payroll data.
• Financial alignment: Promotes consistency between payroll records, accounting systems, and bank transactions.
• Employee satisfaction: When employees are paid correctly and on time, morale and retention improve.
• Company reputation: Well-managed payroll reflects professionalism and can positively influence growth and performance.

How to Perform Payroll Reconciliation

While each company may tailor the process to its needs, payroll reconciliation generally follows these steps:

1. Collect payroll documentation
   Gather all timekeeping data, attendance records, PTO logs, and any additional compensation details. Organize by pay period for better tracking.
2. Validate hours worked
   Cross-check reported hours against expected schedules, and verify any overtime or leave taken.
3. Confirm pay rates and bonuses
   Ensure that each employee’s wage is correct, including recent raises, bonuses, or incentive pay that may affect earnings.
4. Compute gross pay
   Multiply hours worked by hourly rates or confirm salary amounts. Be sure to include any applicable overtime or additional earnings.
5. Apply statutory deductions
   Deduct required contributions such as federal, state, and local taxes, Social Security, and Medicare. Staying current on tax laws is key for accuracy.
6. Subtract voluntary deductions
   Account for employee-elected deductions like 401(k) plans, health insurance, or other benefits.
7. Determine net pay
   Subtract total deductions from gross pay to calculate the final amount employees will receive.
8. Match payroll with bank activity
   Compare payroll reports with actual amounts withdrawn from your business accounts to make sure the numbers align.
9. Resolve discrepancies
   Investigate any mismatches or errors with input from HR, finance, or payroll teams, and make corrections as needed.

Using payroll software like the solutions offered by Beyond can streamline this entire process and reduce manual effort.

Key Calculations in Payroll Reconciliation

At its core, payroll reconciliation involves simple but essential math. For example, to determine gross pay, you might multiply an employee’s 80 hours worked in a biweekly pay period by their $50 hourly wage, resulting in $4,000 gross pay. From there, you’d calculate all deductions and arrive at their net pay.

How Often Should Payroll Be Reconciled?

Payroll reconciliation should happen routinely, not just occasionally. Best practice is to reconcile every pay cycle, ideally a few days before direct deposits or checks are issued. Additionally, reconciliation should be performed:

• Quarterly, before submitting IRS Form 941
• Annually, before issuing W-2s

Frequent checks help ensure payroll expenses match what’s reported in your general ledger and prevent year-end surprises.