Payroll is one area of accounting that can
cause many problems if not managed diligently and thoroughly. One tool to
accomplish this is payroll reconciliation. What is payroll reconciliation and
how can you use it to avoid extra costs and legal issues? Here are some answers
to your questions.
What Is Reconciliation?
Reconciliation is a common accounting
practice in which two sets of data are matched to each other to see if there
are discrepancies.
The most common reconciliation most people
are familiar with is reconciling a bank statement with the balance in a check
register. If the two bottom totals don't match, you would determine which
individual entries may be in one list but not the other. By adding and
subtracting these, you eventually come up with a total that agrees or you must
figure out the root problem in your system.
What Can Be Reconciled in Payroll?
So, how should you use reconciliation in
payroll? First, when entering changes into your payroll software for new
employees, raises in pay, or bonuses, you would reconcile what comes out on the
paychecks versus what is in employee information and what was on paper forms.
When these three match, you know people are being paid correctly.
You may also use payroll reports to
reconcile the amount on paychecks with what was expected. A list of salaried
employees' gross pay could be compared to the total on reports printed from the
payroll check run. If the salary total doesn't match the total gross pay for
the group, you would need to determine why.
Reconciling payroll from one period to
another also helps you notice errors or trends. If this month's payroll report
is significantly higher than last month but operations haven't changed, you can
follow clues to find out why. Someone's pay or hours may have been entered
incorrectly - especially by automated timekeeping systems. You may have an
overstaffed department. Or someone could be committing payroll fraud.
Payroll taxes are some of the most
important reconciliations. The employer is responsible for calculating the
right amount of taxes to be withheld from paychecks, placing these in a holding
account, and remitting the correct amounts to tax agencies. The payroll
department, then, should reconcile what's withheld versus what's in the holding
accounts and whether the holding accounts are equal to remittances.
When Should You Reconcile Payroll Items?
Ideally, you should take time before each
payroll check run is finalized to reconcile many of these items. If
reconciliation finds errors - such as incorrect pay rates or withholding - this
is the best time to correct them. At a minimum, someone should reconcile
payroll reports on a regular schedule (perhaps monthly) so that errors or
trends don't go on for too long.
And certainly, payroll taxes should be
reconciled as part of your quarterly (or more frequent) payment process. It's
expensive to allow errors in taxes to continue.
What Should You Do If There Are
Problems?
The most common problem with payroll
reconciliation is simply finding the time to complete it. If your busy
accounting staff doesn't have the time to research these numbers, you should
consider hiring outside help to make it possible. Because your company is at
risk for incorrect taxes, additional penalties, payroll fraud, and disgruntled
employees, getting payroll right is vital.
What if you are able to reconcile elements
of payroll but find problems? This may call for professional assistance to sort
out. If payroll tax calculations are consistently wrong, for instance, you may
not have set up your payroll software correctly. And if payroll hours are
consistently reported or entered incorrectly, your bookkeeping system might need
an overhaul.
Do you need help reconciling your payroll
information? If so, don't delay. Start by meeting with the payroll
professionals at Quality
Bookkeeping Services Inc. We can help you make a plan that allows your
staff to ensure accuracy and consistency throughout the payroll process.
