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Payroll Reconciliation

Payroll Reconciliation

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Published by Joe Pugh
This article demonstrates, step-by-step, how to prepare a reliable and efficient reconciliation of payroll for small businesses which outsource the calculation of payroll.
This article demonstrates, step-by-step, how to prepare a reliable and efficient reconciliation of payroll for small businesses which outsource the calculation of payroll.

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Published by: Joe Pugh on Jan 18, 2009
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11/07/2012

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Payroll Reconciliation for Businesses with Outsourced Payroll
- by Joseph G. Pugh, CPP 
Of all outsourced services, payroll can be one of the most economical. Large payroll companies(hereafter referred to as PCs) have become experts at efficiently processing payroll
en masse
andcharging a very affordable fee for doing so. In fact, of all accounting-related functions, payroll processing is arguably the most frequently outsourced. One major advantage of this is thatoutsourcing payroll can be an economic method of minimizing the risk of compliance gaps in the payment of payroll taxes. On the other hand, this practice can have its pitfalls if the clientcompany assumes that the purpose of outsourcing payroll is to save staff time. It isn't.The complexity of payroll processing requires that client staff pay meticulous and ongoingattention to the management of payroll data from the point of compiling pay information throughcomplete reconciliation between the payroll worksheets, the payroll company's reports, and theclient's general ledger. One of the primary weaknesses of outsourcing payroll is the“communication gap” between the client and the payroll company. This can be seen whenever the payroll package contains unintentional deviations from the client's intent. This unfortunatecircumstance usually results in the client's complaint that “payroll wasn't done right,” and the payroll company's rehearsed response that “you didn't properly inform us of what you wanted.” Necessary corrections of such problems is time consuming and can be embarrassing to the clientif the problem is identified by the employee whose paycheck is affected! Only a careful per-pay period review of all facets of the payroll reports will reveal any deviations from the client'sintent. A starting point for such review lies in the properly organized documentation of the clientdata in a format that can be readily compared against the payroll company's report to identify problems. The purpose of this paper is to suggest one method for making this process practicableand efficient for in-house staff.The efficient payroll process begins with a well designed worksheet. This writer recommendsusing a multi-page Excel or other spreadsheet document. The first page of the spreadsheet canideally be used to contain raw per-payroll data. The second page can be used as a printablereconciliation form which would draw some totals from the preceding page, and have other fields available for direct input from the payroll company's reports. The final page can be used torecord changes and adjustments made to employees' payroll as needed.The purpose of the first page of the worksheet is to provide a vehicle for the initial entry of hoursand earning data. This will allow for the efficient transmission of data, whether via download or via telephone call, to the PC. In addition, this page will serve as a valuable source of totals for the reconciliation process. Useful columns to have on page 1 include: PC file number (that codewhich designates individual employees to the PC), department code (if applicable), rate of pay(or other designation), employee last name, first name, comments (useful to refer to during a payroll call-in), separate columns for each type of “hours” designation needed (e.g., regular, OT,vacation, sick, personal...), total hours worked, Gross pay (this may be a calculated fieldnormally based on the data in the rates and “total hours” columns). It may also be useful to

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