John F. Dennehy Jr., CPA, PC

Simple Small Business Guide for Managing Payroll Reconciliation

Payroll reconciliation involves verifying all of your employees have been properly paid. At the same time, payroll reconciliation ensures taxes are paid and reported correctly. In the end, this meticulous checks-and-balances process will guarantee all the expenses are applied to the proper account. Even so, how you reconcile payroll can be based on a variety of factors. Continue reading to learn more about payroll reconciliation.

Payroll Reconciliation

Regardless of your industry, payroll reconciliation will involve different accounts, such as:

  • Social Security withholdings
  • Federal taxes
  • State taxes
  • Insurance deductions
  • Retirement
  • Medicare

If your employee earned $1,500 during a pay period, but only received $950, the rest of the money would be disbursed appropriately across these accounts. In this case, reconciling the payroll check would entail verifying all of the accounts involved with the transaction agree.

When your small business bookkeeping is conducted by a professional accountant, the expert will always check their entries for errors and make any required adjustments. Once the transactions are submitted, the accountant's system will produce the checks for printing.After payroll, the accountant will systematically review the entries to ensure everything is posted to the proper account and they are correct.

Transaction Validation

Once payroll has been completed, an accounting clerk will review all of the entries for accuracy and validate miscellaneous items, such as overtime, withholdings, and payroll tax entries. This additional step will help to ensure the transactions occurred correctly.

The balancing of payroll typically includes verifying all entries disburse payroll to the proper account. For example, salaries of production workers responsible for creating products should be accumulated in the proper account, which may be called "cost of goods sold."

Payroll and Earnings Registers

As an accuracy measurement, the accountant double checks the salary wages, hourly wages, and overtime. The numbers from individual checks are compared against payroll and earning registers to ensure these accounts balance. When you add the various withholding accounts, tax accounts, and the other various accounts associated with payroll, the transactions for the specific period must be equal to the payroll.

Budget Reconciliation for Payroll

Reconciling the payroll against the budget for the period is another type of payroll reconciliation. The clerk or accountant compares budgeted figures against the actual payroll figures. Reports are commonly generated and distributed to department managers, so they can learn the areas where salaries fell under or over budget. In most instances, this information is critical for meetings between management and upper management to explain any budget discrepancies.

How to Reconcile Payroll

The complexity of your payroll is directly correlated to the size of your organization. However, you can use a payroll reconciliation template and use the following steps for payroll reconciliation:

  • Around two days before payday arrives, reconcile accounts to confirm all workers have been paid accurately.
  • Print a payroll register that summarizes deductions and wages for each employee.
  • Balance the information against time cards and the figures the payroll system states your employees have been paid.
  • In this process, make sure to verify salaries, regular employee wages, bonuses, commissions, overtime, any extra type of payment. You should also verify insurance, taxes, garnishments, and any other type of deductions.
  • Anytime you spot an error, it's important to remedy the problem before you pay your staff.

Month-End Reports from Payroll

You can perform monthly reconciliation by creating month-end reports designed for balancing vendor payments with employee deductions. For instance, if you offer vision, medical, and dental insurance to your employees, most carriers will send you monthly invoices.

When you get those invoices, ensure the correct deductions were taken out of employee wages. Afterwards, you can post these expenses to the proper financial accounts.

Quarterly Reconciliation for Taxes

The majority of employers are required to file quarterly tax reports with the IRS to report FICA and income taxes withheld from employee wages as well as the FICA taxes of the business. Most businesses pay their taxes monthly or semiweekly.

Before you submit quarterly returns, produce reports demonstrating the amount paid for the quarter. Check to see if it balances with the liabilities reported. Smaller businesses with yearly liabilities of $1,000 or less may be allowed to produce annual reports with the Internal Revenue Service.

In some instances, you may be allowed to submit payments with your returns. In either case, you should reconcile to confirm the amounts you report and the amounts you should pay. The same concept applies for state tax reporting, except you would apply the filing rules and payment of each respective state agency.

Contact Dennehy CPA

Managing payroll and payroll reconciliation can be extremely time consuming in a world when time is at a premium. Unless you have a dedicated payroll department, you can easily spend hours toiling over various payroll accounts. Unfortunately, most small businesses do not have the budget to hire a full-time payroll staff.

At John F. Dennehy Jr., CPA., PC, we offer decades of experience simplifying payroll reconciliation for small businesses. We specialize in a variety of industries, and our services are fully scalable, which means it's the perfect solution for any size of business. When you partner with John F. Dennehy Jr., CPA., PC, you will have access to a full team of dedicated accounting professionals.

Contact John F. Dennehy Jr. CPA, PC today to learn how we can help your business.​

About the Author John F. Dennehy Jr., CPA, PC

Popular posts