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Payroll Reconciliation Helps Payroll Systems, Ensures Compliance

June 23, 2022, 2:22 PM

Payroll reconciliation can help payroll professionals prevent agency inquiries and ensure that their payroll systems are functioning accurately, a payroll professional said June 22 during the American Payroll Association’s 2022 Virtual Congress.

“We refer to agency inquiries as those coming from the Internal Revenue Service, the child support enforcement agencies, as well as your state withholding and unemployment accounts,” said Susan Judah, CPP, a senior IT systems analyst in Denver’s payroll division. “We never like to get letters from them telling us something is wrong so you want to make sure you reconcile.”

Reconciliation first reviews data used by the payroll system, such as employee status, earnings, and deductions, and then looks at the data produced by the payroll system, such as garnishments, withheld taxes, and net pay.

“Make sure you have the proper taxes withheld. Make sure you have the employer taxes being processed. Make sure your direct deposit file is 100% accurate. And make sure your positive pay file, for your live checks, is accurate as well. Verify all of the net payments you have and what you are expected to see,” Judah said.

How to Reconcile

Reconciliation requires comparing the data in a timekeeping system with the data in a payroll system, said Karen Ward, CPP, director of payroll training with the APA.

Reconciliation can be exact or reasonable, she added. Exact reconciliation is precise and complete, while a reasonable reconciliation reviews the payroll process by comparing similar pay periods.

Reasonable reconciliation can be preferable to exact reconciliation if notable differences exist between pay periods. For example, an airline flight crew may get paid in advance on their first check before a trip and receive a second check in the next pay period for the actual trip, Ward said. In this case, it would be better to compare the first checks that airline flight crews receive in advance before a trip instead of comparing the first and second check for the same trip, which are dissimilar.

Occasionally, payroll professionals may also perform a general ledger reconciliation, which reviews the assets, liabilities, and expenses in the payroll department for a given month, she said. However, unless an organization is small, accounting departments are generally responsible for performing a general ledger reconciliation.

Regardless of the type of reconciliation, payroll professionals reconciling their systems should identify any variances before making adjustments and explain why they are making the adjustments, she warned. Only after these conditions are met should they make the adjustments and process the payroll.

When to Reconcile

Reconciliation should take place during every pay period, and payroll professionals may want to perform multiple reconciliations if they receive multiple timekeeping files within a pay period, Ward said.

“One thing you don’t want to have is that needle in a haystack that you can’t find,” she said. “When you’re looking for it on the final day of processing in those late, late hours before you hit go or finalize, it can be very tedious.”

Some payroll departments may be able to perform reconciliations less frequently if their organizations have a monthly pay frequency, all of the employees are salaried, or payroll changes are not made within a calendar quarter. However, most organizations should be performing payroll reconciliations regularly, especially at the end of the year when an employer begins issuing Forms W-2 and the end of a calendar quarter when Forms 941 are filed with the IRS.

“You’re going to have to see what works best for you at your current employer,” Ward said.

To contact the reporter on this story: Emmanuel Elone in Washington at eelone@bloombergindustry.com

To contact the editor on this story: William Dunn at wdunn@bloombergindustry.com