Payroll reconciliation

Last updated: February 26, 2026

Payroll reconciliation is the cross-analysis of source data and payroll records with the intent of finding any variances that could result in incorrect payments. Some of the most common mistakes found during this process, such as overpayments and underpayments, can be prevented using standardized reconciliation templates and checklists that hold people accountable.

Payroll reconciliation key takeaways

• Payroll reconciliation supports compliance and may help control costs and build employee trust.
• When reconciling payroll, employers pay close attention to employee statuses, benefits deductions, taxes and gross to net pay conversions.
• Payroll is reconciled before, during and after each pay period to increase the chance of uncovering variances.
• Payroll software with variance reports can help employers compare past and current pay periods to quickly reconcile payroll.

What is payroll reconciliation?

Payroll reconciliation is the process of comparing payroll records against the source data. This analysis typically spans HR, time and attendance, benefits, personal information, etc. The goal is to ensure employees are paid accurately and that all payroll transactions are complete, correct and properly recorded.

Benefits of payroll reconciliation

Employers who regularly reconcile their payroll may experience the following benefits:

• Accurate pay – Compensate people correctly regardless of complex variables, like overtime, shift differentials, wage garnishments, etc.
• Compliance – Support efforts to comply with tax, labor and statutory requirements, such as the Federal Insurance Contribution Act (FICA), Family and Medical Leave Act (FMLA) and more.
• Cost control – Identify and prevent overpayments, duplicate payments and any other incorrect transactions that would negatively impact the bottom line.
• Audit readiness – Create a strong control environment for both internal and external audits.
• Employee trust – Reduce payroll complaints and instill confidence in employees.

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Top issues detected through payroll reconciliation

Reconciling payroll can help employers uncover various errors, which if not addressed, could cause erroneous payments to employees, government tax agencies and benefits providers. Some of the most common mistakes identified during a reconciliation include:

• Overpayments or underpayments
• Duplicate payments
• Incorrect salaries or hourly rates
• Missing or incorrect time records
• Benefits deductions misaligned with enrollment
• Terminated employees still receiving payment
• New hires not receiving pay
• Incorrect tax withholdings

How to reconcile payroll

When reconciling payroll, employers cross-examine projected data with actual data after all the hours worked by employees have been recorded. They pay particular attention to employment statuses, gross earnings, deductions, tax withholdings and net pay.

• Employment status – Active employees, new hires and terminated employees 
• Gross earnings – Base salaries, hourly wages, overtime, bonuses, commission and allowances
• Deductions – Wage garnishments and voluntary contributions to benefits plans
• Tax withholdings – FICA taxes, income taxes, unemployment taxes and other state and local taxes
• Net pay – Compensation paid to employees after all statutory and voluntary deductions have been withheld

If any discrepancies are found between the projected figures and the actual data, employers adjust payroll as necessary. However, because the pay period has already closed, the reconciliations are reflected in the pay cycle after the one for which the employee's payroll was projected.

Using payroll software for reconciliations

Depending on their payroll solution, employers may be able to run payroll variance reports that greatly simplify reconciliation. They can often compare the previous pay period with the current one to quickly identify any data that has changed.

Payroll reconciliation stages

The payroll reconciliation process transcends three primary stages – pre-payroll, payroll processing and post payroll. Proper execution during each of them is vital to payroll accuracy.

Pre-payroll

This stage sets the foundation upon which all payroll data will be reconciled. Employers should validate that any new hires or terminations are accounted for and that all employees within the system have the correct salary or hourly rate.

During processing

Before approving payroll, employers must review the payroll register to ensure all expected changes are properly recorded. This step involves comparing the current pay cycle to the previous one, validating gross to net pay calculations and double-checking voluntary and statutory deductions. Any large variances found should be further inspected.

Post payroll

Post-payroll reconciliation involves transcribing the debits, credits and accruals from the payroll ledger to the general ledger. Employers at this stage will also want to check their bank records to ensure the funds released match the payroll output.

Preventing common payroll reconciliation challenges

To avoid the chance of discovering variances during payroll reconciliation, employers may want to take the following steps:

• Ensure that data streams are regularly synchronized and audited.
• Use standardized payroll reconciliation templates and automate processes.
• Communicate with different departments to establish cut-off times for payroll submissions.
• Prioritize high-risk scenarios and trends since these are the most likely causes of variances.

Payroll reconciliation checklist

Creating payroll reconciliation checklists can help maintain accountability and ensure that all activities have been completed. Such resources vary based on individual payroll processes, pay cycles and the degree of automation vs. manual intervention. However, a basic payroll reconciliation checklist usually includes the following:

Pre-payroll activities

• New hires and terminations identified
• Salary and hourly wage changes confirmed
• Time and attendance verified
• One-time payments reviewed
• Pay cycle set up

Payroll processing activities

• Gross and net pay compared to prior period
• Large variances explained
• Deductions validated
• Taxes reviewed
• Net pay and zero checks reviewed

Frequently asked questions about payroll reconciliation

What is global payroll reconciliation?

Payroll is a global function, which means that basic reconciliation processes can be applied to multiple countries. However, employers should always be aware of any payroll regulations specific to a particular region to avoid potential compliance violations.

How often should payroll be reconciled?

Payroll should be reconciled each pay period at three specific points – before the pay cycle begins, during the pay cycle (but prior to approval) and after the pay cycle closes. This multi-step process helps ensure that any variances are not overlooked.

Can a small business skip reconciliation?

Skipping payroll reconciliation is not recommended because unreconciled variances can pose financial risks for businesses, both large and small. Even if a business has only a handful of employees, it’s crucial that they pay their people correctly.

This article is intended to be used as a starting point in analyzing payroll reconciliation and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.

Trusha Palkhiwala Divisional Vice President, Global HR Shared Services, ADP Trusha ensures Global HR Shared Services delivers service excellence through digital transformation, focus on client service excellence, continuous improvement programs and global simplification projects.