Payroll professionals and HR managers use a number of tools and resources. But you should always make use of these essential payroll management tools.
[A previous version of this post was published in January 2015. While software and online apps continue to evolve, change and multiply, certain tools remain essential to effective payroll management.]
Payroll management, especially payroll processing, can be an incredibly labor-intensive task involving vast amounts of detail-oriented work, recurring deadlines, and a growing body of rules and regulations to comply with.
HR or payroll professionals tasked with managing their company's payroll procedures often rely on a number of tools to assist them in their work.
But there are three fundamental tools that are often underused or even disregarded. However, these are simple tools that can help smooth even the most complex payroll situation.
The Three Primary Tools of Payroll Management
While these are basic and fundamental, don't let their simplicity cause you to dismiss them. You probably already familiar with the first one, but it is likely you either don't have or fail to make use of the other two:
1. Payroll calendar
2. Payroll procedure manual
3. Payroll tasks checklist
Armed with these tools, your payroll department can function with a greater degree of confidence when it comes to maintaining accuracy, timeliness, and payroll compliance with your payroll process.
When you set up your business's payroll management system, one of your first tasks was to determine how often your employees would get paid. Businesses can set up different pay periods for different classifications of employees, such as salaried vs. hourly employees, for example. Keeping track of pay periods, pay days, and related payroll tasks can be challenging.
The main purpose of the payroll calendar, or pay schedule, is to establish and track all of this, especially pay periods. The most common frequencies in the U.S. are monthly, semi-monthly (twice a month), biweekly (every two weeks) and weekly. State laws typically require a minimum pay period -- you can always pay more frequently but not less.
A common problem in many businesses, in any number of departments, is either a lack of documented procedures for repeated tasks, or only partial adherence to procedures. This can lead to some serious issues for a payroll process as far too many payroll departments function primarily from the knowledge and experience of their staff.
And while this can suffice for a time, if key staff members leave then the processes are in jeopardy of being carried out incorrectly, or overlooked completely. The only effective way to avoid this is to create a procedure manual with each and every task or process fully documented.
If you haven’t already accomplished this, a great way to approach it is to document each payday, monthly, and quarterly procedure as you complete it.
Documented procedures for payroll processing, payroll tax filing, and other payroll management tasks can take all the "guesswork" out of payroll functions, ensure that tasks are executed the same way each time, and minimize the risk of being out of compliance or making payroll processing errors.
Year-end is often a long and arduous process, but having a comprehensive action item checklist can simplify your tasks. If your list has been used and followed consistently throughout the calendar year, your year-end process will be much smoother and less stressful.
In addition, the checklist can serve as a “To Do” list for processes and procedures that should be documented.
If you have additional procedures that are not included here you can add them to this checklist. In addition, if there are tasks listed here that do not apply to your business functions, they can be deleted from the list.
Here’s a short checklist you can use to help guide you through each pay period, each month and each quarter. Keep in mind that this is not a complete listing of every task you may have to accomplish in your payroll management procedures. In fact, it is highly recommended that you create a comprehensive list that can be referred to by everyone involved in the payroll process:
After every pay period:
- List each earning and deduction category and tie those figures to Form 941, Line 2.
- Map and reconcile each payroll earning and deduction category to the general ledger.
- Post employees’ benefit/payroll adjustment data.
- Run payroll adjustments for year-to-date corrections
- Obtain data from other departments to track taxable payments to employees that aren’t made through the Payroll department. Tax and post adjustments, as necessary.
- Break out taxable executive benefits and get input from the appropriate departments to track taxable payments to executives. Tax and post adjustments, as necessary.
After every month:
- Reconcile your tax register and bank accounts.
- Follow up on outstanding checks that are older than 30 days and post unclaimed checks to an unclaimed earnings escrow account.
- Document gross-to-net calculations for manual checks.
- Ensure that manual checks and voids are entered properly.
- Review the general ledger accounts.
After every quarter:
- Reconcile taxable wages from Form 941, Line 2 to taxable wages, as recorded in a wage summary report, for income tax withholding.
- Do the same for the tax amount from Form 941, Line 3 to taxable wages, as recorded in a wage summary report.
- Reconcile your state tax liability to state taxable wages, as shown in a wage summary report, and reconcile state taxes withheld to state taxes deposited.
- Tie federal income tax withholding totals to state income tax withholding totals.
- For the Social Security tax withholding, reconcile taxable wages from Form 941, Line 5a to taxable wages, as recorded in a wage summary report, and reconcile the tax amount from Form 941, Line 5a to the taxable amount, as recorded in a wage summary report.
- For Medicare tax withholding, reconcile taxable wages from Form 941, Lines 5c and 5d to taxable wages, as recorded in a wage summary report. Do the same for the tax amount from Form 941, Lines 5c and 5d to the taxable amount, as recorded in a wage summary report.
- Reconcile FUTA tax liability to FUTA taxable wages, as recorded in a wage summary report, and reconcile FUTA tax amounts to FUTA tax calculations.
- Reconcile SUTA tax liability to SUTA taxable wages, as recorded in a wage summary report; also, reconcile SUTA tax liability to SUTA tax amounts.
- Tie FUTA totals to SUTA totals.
- Reconcile the Form 941 totals and wage summary totals to Forms W-2/W-3.
- Balance quarterly reports and Forms 941 to the general ledger.
- If needed, after filing Form 941 for the quarter, make interest-free adjustments of under reporting errors by filing Form 941-X by the due date of Form 941 for the quarter during which the error is discovered, and pay any tax due.
- File Forms W-2c/W-3c, if needed.
Update and improve your tools
Having the fundamentals is a great start. Utilizing up-to-date software is also a great use of available tools. Looking to the cloud and even considering outsourcing are also great options when it is no longer a matter of simply tools, but of time and resources.
For payroll managers, keeping up to date with continually changing Federal and State regulations and new legislation is a never-ending task. The consequences of mis-filing taxes, missing payments, or other withholding and tax filing errors can be costly for a business and, in some cases, catastrophic. However, there are options to doing everything yourself.
If Accuchex is not currently filing your taxes, call to find out how we can smooth this process (and others) for your business. Let Accuchex help you in managing your HR needs, payroll processes, and staying on top of compliance demands. Get your Free Download: Payroll Outsourcing Guide to help you make an informed decision or call Accuchex Payroll Management Services at 877-422-2824.