Build a payroll calendar
A payroll calendar lists for each pay period the hours cutoff, the date approvals are due, the date payroll is submitted and funded, the pay date, and the dates taxes and benefits are due. Add holidays that move bank days. Share it with whoever supplies hours, bonuses, and changes, so that late inputs are the exception.
Review the register before you submit
Errors are cheapest to fix before funding. Check new hires and terminations, pay rates, hours against time records, overtime, bonuses and commissions, deductions, and the state and local settings for each employee. Compare total gross pay with the prior period. A swing of more than a few percent without a reason is worth a question.
The clearing account
Payroll providers usually withdraw one amount from your bank for net pay, taxes, and sometimes benefits. Record the full payroll in the ledger, with wages, employer taxes, and liabilities. Then record the provider's withdrawal against a payroll clearing account. The clearing account should return to zero after each payroll. A balance that stays means the ledger and the provider disagree, and you should find out why that month, not at year end.
Corrections and reversals
When a payroll has an error, fix it in a way that leaves a trail. Voiding or reversing a payment should not erase it from wage and tax records, because reports and filings depend on them. Record the reversal as its own entry with the date, reason, and who approved it.
If you overpay an employee, document the amount, how it will be recovered, and the tax treatment, which depends on whether the error is in the same year or a prior one. Ask your payroll provider or CPA how to correct the wages and taxes, as well as the cash and the employee balance.
Changing providers
Switching payroll systems is easiest at the start of a quarter, and cleanest at the start of a year, because year-to-date wages and taxes then start from zero. If you switch midyear, the new provider needs year-to-date totals for each employee, by quarter. Reconcile them to your last quarterly return before the first payroll runs.
Frequently asked questions
How often should I reconcile payroll?
Every pay period for the entry, and every quarter against the filed return.
Can I delete a payroll run?
Not without consequences. Reverse it so the history remains, and let your provider or advisor handle the tax effects.
Who is responsible if the provider makes a mistake?
The employer remains responsible for payroll compliance, so review the reports.