Payroll Reconciliation: A How-to Guide For Small Businesses


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Paying your employees is important, but so is payroll reconciliation.

This payroll process might sound groan-worthy, but it helps with everything from preparing for taxes to monitoring your business expenses—not to mention ensuring that you pay your employees correctly.

For example, imagine that your employee’s paycheck was supposed to be $800, but you mistakenly gave them a check for $950 instead. Or maybe you messed things up in the opposite direction and underpaid your employee.

Either way, you have a big mess on your hands—and it’s proof that the payroll reconciliation process is an important part of managing payroll. Read through this guide to learn more about payroll reconciliation and how to reconcile payroll in 6 easy steps.

How payroll reconciliation works

Payroll reconciliation compares your payroll register with the amount of money you’re paying your employees to ensure they match. You’re essentially double-checking your math to ensure you pay your employees correctly.

Payroll reconciliation should happen frequently, including:

  • Every pay period before you cut employee checks—ideally, at least two days before your payday
  • Quarterly when you submit Form 941 with your quarterly federal tax return
  • Annually during tax time when you confirm that your payroll data matches each employee’s Form W-2

While payroll reconciliation might not be your favorite small business task, it’s important to do regularly so that you can:

  • Pay employees correctly: According to LendingClub, 60% of Americans live paycheck to paycheck, making it crucial that you pay your employees correctly and on time.
  • Avoid fines and penalties: Making mistakes with payroll not only destroys morale, it can also lead to penalties from the IRS.
  • Keep accurate payroll records: Failing to reconcile payroll means your books and general ledger can be outdated and incorrect. This causes major headaches and hassles come tax time—plus the potential for more penalties.

Keep in mind that payroll expenses are one of the biggest costs that small business owners need to cover, making it crucial that you verify your numbers are correct.

How to reconcile payroll in 6 steps

You’re sold on the importance of the payroll reconciliation process, but knowing how to do it is an entirely separate challenge. Before you get started, you’ll want to make sure you have the following within reach:

  • Your payroll register: To get all of the payroll data you need
  • Employee time cards or time sheets: To get hours worked for that specific payroll period
  • Your general ledger: To record wages and deductions and maintain accurate financial records

Have those ready to go? Now we can get into the specific payroll reconciliation steps.

1. Check your payroll register

Your payroll register lists all of the details about an employee’s payroll during a pay period. It should include basic information about the employee, including: 

  • Name
  • Birthdate
  • Social security number
  • Employee number

In addition to those basic details, your payroll register should also record all of the payroll activity from each pay period, including:

  • Hours worked
  • Pay rate
  • Pay date
  • Regular hours
  • Overtime hours
  • Federal, local, and state income taxes
  • Employee withholding for social security and Medicare (FICA taxes)
  • Other payroll deductions (such as health insurance, retirement plans, wage garnishments, etc.)
  • Gross pay
  • Net pay

You’ll need to start the payroll reconciliation process by ensuring that all of this information is correct.

For example, did an employee recently change their payroll withholding status or number of allowances? You’ll need to update that in your payroll register. Did you bring on a new employee? Remember to list that on your payroll register, too.

You should also double-check your math by confirming that an employee’s gross pay on your payroll register equals their pay rate multiplied by the total number of hours worked.

2. Confirm employee time cards

When reconciling payroll for a specific pay period, you’ll need to look at your employee’s time cards or timesheets for that span of time. Check to see if their hours are entered correctly and confirm the hours on their timesheet match what’s in your payroll register.

Keep in mind that you’ll also need to account for:

  • Paid time off
  • Unpaid time off
  • Vacation time
  • Sick days
  • Overtime
  • Holidays

All of those will impact the amount of your employee’s paycheck for that pay period. Note that this step is far less tedious and time-consuming if you use time tracking software instead of paper timesheets and time cards. 

3. Check pay rates

Now you know how many hours you need to compensate an employee for during that payroll period. It’s time to determine the other half of the equation by figuring out what pay rate you should multiply that number by.

Turn your attention to only the pay rates printed on your payroll register. Are those numbers still current?

For example, maybe an employee recently received a raise. You’ll need to update their pay rate on your payroll register. Or, perhaps you changed your overtime rate. You will also need to reflect that on the register.

This step is crucial, as you’ll use these pay rates to determine your employee’s gross wages. If this isn’t correct, your entire payroll will be off.

4. Confirm paycheck deductions

You know that you can’t just multiply the hours worked in that pay period by the employee’s pay rate and cut a check for that amount. You need to ensure that you’re withholding the correct amount from their paychecks.

At a minimum, you’ll need to withhold the following from your employee’s paycheck:

  • Social Security
  • Medicare
  • Federal income tax
  • State income tax (if applicable)

However, you could have other deductions from their paycheck, including but certainly not limited to:

Again, all of this should be recorded and up-to-date in your payroll register. But, if you have doubts about the accuracy of that information, check your employee’s Form W-4 to confirm their withholding amounts.

Deductions should be reported individually rather than as a lump sum. That helps you double-check and is also important when you need to file your small business taxes. 

5. Record in general ledger

Whenever you run payroll, you must also record it in your business’s general ledger. These are called payroll journal entries or ledger entries. You might hear your general ledger referred to as your business’ “books,” as it’s where you’ll keep records of your financial data. 

Record every single financial transaction in your general ledger, and split transactions into the following categories:

You’ll record total wages paid to your employees as a debit, and record deductions as a credit. This is another process that’s more straightforward and streamlined with accounting software or payroll services. That will eliminate a lot of manual effort and reduce human error.

6. Submit payroll

You’ve completed all necessary double-checking and recordkeeping. Now you’re ready to print your employees’ paychecks or make their direct deposits on payday.

You’ll also need to deposit the federal income tax you withheld, as well as the employer and employee share of Social Security and Medicare taxes (known as FICA taxes) to the IRS.

You’ll submit these payroll taxes either on a monthly or semi-weekly schedule. You should have determined which deposit schedule you planned to use at the beginning of each calendar year. Additionally, submit your payroll tax reports via Form 941 quarterly.

Next steps for streamlining your payroll process

Ultimately, payroll reconciliation isn’t nearly as big of a burden as what happens if you don’t reconcile your payroll. To help automate the payroll process and ensure you pay your employees correctly, consider using payroll software to save time and help reduce human error.

This article originally appeared on the QuickBooks Resource Center and was syndicated by

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Living paycheck-to-paycheck? Here’s how you can stop

Living paycheck-to-paycheck? Here’s how you can stop

There is nothing more stressful than coming home from a long day of work and not knowing how you will afford to pay your bills. If this sounds like something happening to you, then it might be time for some changes. 

In the U.S., 54% of people are living paycheck to paycheck

This article will go over how to stop living paycheck to paycheck. 


The first step to stopping your paycheck from constantly running out is figuring out where all of your money is going. Track every penny you spend for a month using an app like Mint

You will see where you can cut back and save some money. Awareness is critical here. 

Make sure you use my free budget template to get you started on tracking your expenses.

Eliminate any unnecessary expenses. Here is a list of ordinary expenses that cause you to live in the paycheck-to-paycheck cycle:

  • Fast food trips
  • Restaurant eating
  • Expensive gym membership
  • Coffee at the cafe
  • Alcohol
  • Another pair of shoes
  • More clothing

There are many ways to cut back on your spending, and it will likely take a bit of effort on your part. You don’t have to eliminate these above expenses completely. 

Being 1% better every day is the way to financial independence. Begin by making temporary sacrifices that are small and sustainable. If you stop spending on everything you like, you will probably relapse and accumulate more debt. 


One way to save right away is to negotiate your expenses.

Many people are afraid to negotiate their expenses, but it can save you a lot of money in the long run. If you don’t ask, you’ll never know whether or not you could have gotten a better deal.


Go through all your spending and see if you can do without one of your four streaming services. When you eliminate a $10 per month, you will save $120 per year, and if you do that ten times, you can save thousands each year and make real progress toward your savings goals. 

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If you haven’t touched something in the last year, it is likely time to sell it. Have a yard sale if you have many items or use Facebook Marketplace or Craigslist. Having a less cluttered house is totally worth it, and the extra cash doesn’t hurt. 


If you’re looking for a way to bring in some extra money, then consider starting a side hustle

The great thing about having a side hustle is that it can help you make extra money without making any drastic changes to your current lifestyle. 

Millionaires have an average of 7 streams of income. Never rely on your 9-5 job solely. An extra job can help you break this vicious cycle. 

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If you don’t know where you’re going, it can be hard to get there. And when it comes to your money, this is undoubtedly true with financial goals.

You will break the cycle of check-to-check if you set your mind to it. Your financial situation can change if you write down your goals and change your spending habits. 


Avoid spending the cash if a purchase is not part of your regular monthly expenses or spending plan. 

As discussed earlier, the easiest way to add new debt to your life is to spend more money on unnecessary things. 

Put your cards in the sock drawer or only use cash. Paycheck to paycheck life doesn’t have to be forever, yet you need to laser focus on your spending habits.

One of the easiest ways to save is by reducing your utility bills.

Not only will this help you reduce how much electricity and water you use, but it can also lower your monthly bill as well. Plus, making these changes won’t require any effort on your part either.

If you have high-interest debt, it’s crucial to plan to pay it off as soon as possible. Credit card debt can quickly spiral out of control and become difficult to manage.

Go after the account with the highest interest rate first and move on to the next one. Start paying every extra bit of money toward this to pay the debt faster. Do your best to break the cycle of only paying the minimum payment. 


One of the best ways to improve your finances is by educating yourself on personal finance. The best way to do this is by reading books about spending money, saving money, and prioritizing debt payments while breaking the paycheck to paycheck cycle. 

Here are a few of my favorite personal finance books that have helped me build savings and begin building wealth:

  • Rich Dad, Poor Dad by Robert Kiyosaki
  • The Richest Man in Babylon by George Clason
  • The Death of Money by Jim Rickards

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Being debt-free means you will need to stop spending money in various areas and increase your monthly income. 

Get a part-time job. Avoid that big purchase until next year. Spend money on essentials and have money saved for unexpected expenses. 

These sacrifices will help you avoid financial disaster, and when you have more money, you will probably have less stress. Living paycheck to paycheck makes everyone have anxiety. 

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Remember the reason why you want to have financial freedom and not live paycheck to paycheck. 

Is it for that vacation to Italy you’ve always wanted to take? Is it for your kids? You can give them more money tips than you received when they are older. Or is it to become a digital nomad not stuck to any location because you have your living expenses by online income sources. 

Whatever your reason, remind yourself of it daily to not feel aimless. I recommend making a vision board to remind you why more cash is the only way you will break free from the paycheck to paycheck life. 

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Someone recovering from alcoholism does not frequent the bars to hang out with old friends. They avoid the bars and go to meetings to stay sober.

Leave the credit cards in the sock drawer if you don’t have discipline. Do not keep them near you. You will relapse and blow your emergency fund on something silly. 

Know thyself and act accordingly.

Set up a system where your expenses are automatically taken out of your bank account each month, and your emergency fund contributions are automatically transferred to your high yield savings account.

Automating takes the guesswork out of budgeting and will ensure that you’re always on track with your finances. It’s also a great way to ensure that you never miss a payment or contribution. 

Don’t attempt to do this manually with your checking account, or you will invariably put off your savings goal and use your paycheck for something else.

Instead of keeping up with all the latest trends and material items, you’ll only keep what brings value into your life.

Sound like an impossible task? It is at first and will be easier as time goes on and can be pretty rewarding in the end.

Last year I eliminated about 80% of my clothing and shoes. Now I only have what I need, and I feel very relieved. 

There were too many options, and now oftentimes, there is only one option. Easy decision.   

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Don’t deprive yourself when working toward paying off credit card debt. Make sure you are saving money for some enjoyable parts of life.


Your pay must be higher than your expenses. Make sure lifestyle creep doesn’t set in, and you have a surplus at the end of each month. 

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With Facebook Marketplace and Craigslist, you can buy nearly everything used. Everything I have bought used was in excellent condition, and I saved a lot of money. 

This article originally appeared on MaxMyMoney and was syndicated by MediaFeed.

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