What is Payroll Reconciliation?‍

Reconciliation of payroll is one of the most important facets of any organization concerned about maintaining its financial accuracy and compliance. It is a painstaking process whereby checking payroll records against other financial documents in a bid to discover and correct disparities takes place. The objective of payroll reconciliation is to manage accurate financial statements, avoid penalties by regulatory bodies, and build trust amongst the employee base.

‍

Why Payroll Reconciliation? 

Ensure Accuracy and Compliance

One major influence on payroll reconciliation comes from the accuracy of payroll records. Based on a survey conducted by the American Payroll Association, 68% of businesses had at least one type of error related to payroll, which could usually leave the employees dissatisfied and the possibility of regulatory problems at bay. Payroll accuracy confirms that employees are paid right, hence maintaining employee satisfaction and building trust. Furthermore, correct payroll is imperative for local, state, and federal compliance. Incorrect payroll will instigate harsh fines, penalties, and litigation.

Financial Health

Reconciling payroll frequently helps with the financial health of an organization.  Detection of discrepancies early will prevent huge financial loss and ensure that financial statements depict an accurate picture about the Company's finances.  Basically, businesses that do not perform payroll reconciliations regularly have up to 5% financial disparities from the actual payroll cost, according to PwC. This is highly applicable to public firms where the firms have to ensure their books are accurate for shareholders and other regulatory authorities at large.

Steps of Payroll Reconciliation

1. Gathering Payroll Information

The first step in payroll reconciliation is the gathering of all relevant payroll data. This will include timesheets, payroll registers, tax forms, and bank statements. All data needs to be current, with hours worked, pay rates, deductions, and benefits accurately reflected.

2. Verification of Gross Pay

The following step will be to check the gross pay of every employee. This step will ensure that the pay rates and hours of work are properly calculated. A slight discrepancy in this step will result in incorrect net pay, hence it is very essential that this data must be accurate.

3. Check the Deductions and Benefits

All deductions and benefits should be accurately recorded and applied. These include taxes, retirement contributions, health insurance premiums, and other deductions. Ensuring the correctness of these amounts helps calculate the net pay accurately.

4. Reconciling Bank Statements

This is a part of payroll reconciliation that involves cross-checking payroll records against bank statements for proper clearance of the amounts disbursed to staff. Any variance identified should be closely scrutinized and adjusted appropriately.

5. Review of tax filing

This step checks taxation filings for compliance with taxation regulations through an audit that amounts withheld for taxation are computed accurately and reported. As there are penalties and fines associated with the discrepancies of taxation filings, it is very vital to get everything correct.

Common Payroll Reconciliation Problems

Discrepancies in Data

Data discrepancies are among the most common payroll reconciliation issues. These can stem from data entry errors, pay rate errors, or incorrect hours worked calculations. It is essential to track down and resolve such data discrepancies to produce an accurate payroll. According to a study by Ernst & Young, data discrepancies present the biggest challenge for 43% of payroll managers.

Complex Payroll Structures

For organizations with complex structures in their payroll—such as multiple pay rates, bonuses, benefits—reconciling payroll can be very challenging. The recording of all these elements and ensuring that they are appropriately reconciled requires in-depth knowledge of the payroll system and a high level of attention to detail.

Compliance with Laws and Regulations

This could prove to be compliance with several local, state, and federal regulations. Some of the regulations have different payroll reporting and tax withholding requirements. As these regulations are changed frequently, it is necessary to keep up and maintain compliance to avoid penalties or fines. According to an IRS study, each year, 40% of small businesses incur payroll tax penalties—fines of over $4.5 billion annually.

How Peoplehum's HR and Payroll Software Can Help

Peoplehum's HR and payroll software will help run an end-to-end payroll reconciliation process in one place. Here's how it can help:

Automated Data Entry and Verification

The hr software of Peoplehum automates data entry and verification, reducing the likelihood of errors. It is accurate because of the systematic calculation of pay rates, hours worked, deductions, and benefits.

Real-time Reporting and Analytics

PeopleHum's software allows organizations to identify and rectify discrepancies with real-time reporting and analytics. These system-generated detailed reports can help a business draw some valuable insights into payroll data and maintain accurate financial records.

Compliance Management

The payroll software from peopleHum assist organizations in maintaining compliance with local, state, and federal regulations. The system comes with an auto-update of the latest tax rates and regulatory requirements to ensure payroll compliance at all times.

Seamless Integration

PeopleHum's software integrates with any other financial system to cross-check payroll data against bank statements and other financial records, thus ensuring that payroll records are correct and updated.

Conclusion

Payroll reconciliation is a very important exercise in ensuring that payroll records are accurate and compliant. Businesses that undertake payroll reconciliation regularly avoid losses, ensure accuracy in financial statements, and build trust with their employees. Deloitte views that firms automating payroll processes reduce errors by 40% and improve compliance by 50%.

PeopleHum's Payroll and HR software provides an end-to-end solution for the automation of the payroll reconciliation process without any errors and compliance adherence to the regulation of one's desire.

Be it a small or big business entity, PeopleHum's software will help in maintaining accurate and compliant payroll records to improve efficiency and financial health.

‍

‍