Purpose
Pay every employee the right amount, on time, with the correct deductions, and leave a record that shows how each figure was reached. This procedure exists because payroll mistakes cost trust quickly and are harder to fix after the money has moved.
Scope
Covers regular payroll runs for hourly and salaried employees paid through [payroll provider]. Includes overtime, bonuses and reimbursements paid through payroll. Does not cover contractor payments, which go through accounts payable, or year-end tax forms, which have their own SOP.
Roles and responsibilities
| Role | Responsibility |
|---|---|
| Payroll administrator | Collects and reconciles hours, prepares and submits the run |
| Managers | Approve their team’s timesheets by the cutoff |
| Approver ([owner or finance lead]) | Reviews the payroll preview and approves the run |
| [Payroll provider] | Calculates withholding, pays employees and files payroll taxes as configured |
Before you start
- Access to [time tracking system] and [payroll provider]
- The payroll calendar for the year, with cutoff, approval and pay dates
- Changes since the last run: new hires, leavers, pay rate changes, bonuses, approved reimbursements, benefit or deduction changes
- Last period’s payroll register, for comparison
Procedure
- Send the timesheet reminder. Payroll administrator reminds employees and managers [2 business days] before the timesheet cutoff.
- Lock timesheets at the cutoff. Payroll administrator confirms every manager has approved their team’s timesheets in [time tracking system] by [cutoff time].
- Chase any missing approvals the same day.
- Do not approve a timesheet on a manager’s behalf.
- Reconcile hours. Payroll administrator checks hours before entering them.
- Compare scheduled hours to recorded hours and look into gaps larger than [2 hours].
- Check overtime is calculated per your jurisdiction’s requirements and your policy.
- Confirm paid time off matches approved requests and balances.
- Confirm every active employee has hours or salary, and no one who has left does.
- Enter changes. Payroll administrator enters or confirms, in [payroll provider]:
- New hires with complete tax and bank details
- Final pay for leavers, per your jurisdiction’s final-pay requirements
- Rate changes, with the approved change form attached
- Bonuses, commissions and reimbursements, each with written approval
- Preview the run. Payroll administrator runs the payroll preview and compares it to the last period.
- Investigate any employee whose gross pay changed by more than [10%] and any change in headcount.
- Confirm the total cash required and that the funding account has it.
- Get approval. Payroll administrator sends the preview report and a short note of changes to the approver by [approval deadline, e.g. 2 business days before pay date]. Approver reviews and replies with written approval.
- Submit payroll. Payroll administrator submits the run in [payroll provider] before the provider’s processing deadline. Withholding and payroll tax filings are calculated and handled by the payroll provider according to how your account is set up.
- Confirm payment. On the pay date, payroll administrator confirms the funds left the account and checks for any failed deposits reported by the provider.
- Record the payroll. Payroll administrator records the payroll journal entry in [accounting software] within [2 business days] of the pay date and saves the payroll register.
- Close the period. Payroll administrator notes any issues or corrections for the next run in the payroll log.
Checklist
- All timesheets approved by managers before cutoff
- Hours reconciled against schedules and PTO
- New hires, leavers and changes entered with approvals attached
- Preview compared to last period and differences explained
- Written approval received from someone other than the preparer
- Payroll submitted before the provider’s deadline
- Deposits confirmed on pay date
- Journal entry recorded and register saved
Exceptions and escalation
- Missed deadline: If payroll cannot be submitted before the provider’s deadline, tell the approver immediately and ask the provider about options. Tell affected employees before the pay date, not after.
- Pay error found after payment: Tell [finance lead] the same day, agree the correction with the payroll provider, and inform the employee in writing. Check your jurisdiction’s requirements before recovering any overpayment.
- Off-cycle payments: Final pay or corrections outside the normal run need approval from [owner or finance lead].
- Unusual change requests: Any request to change an employee’s bank details must be confirmed with the employee directly through a known phone number or in person, not by replying to the email that asked for it.
Records to keep
- Approved timesheets and the reconciliation notes
- Payroll preview, written approval and final register
- Change forms for new hires, leavers, rate changes and bonuses
- Provider confirmation of submission and tax filings
Keep payroll records for the period your jurisdiction requires, in [payroll provider] and [Finance > Payroll > YYYY].
Review
[Finance lead] reviews this SOP every 12 months, whenever the payroll provider or pay schedule changes, and after any payroll error. A second person should shadow a run at least once a year so payroll never depends on one person.