# Payroll processing SOP template

Owner: Payroll administrator or bookkeeper
Runs: Every pay period

## 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

1. **Send the timesheet reminder.** Payroll administrator reminds employees and managers [2 business days] before the timesheet cutoff.
2. **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.
3. **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.
4. **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
5. **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.
6. **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.
7. **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.
8. **Confirm payment.** On the pay date, payroll administrator confirms the funds left the account and checks for any failed deposits reported by the provider.
9. **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.
10. **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.

---
Template from SOPCompass (https://sopcompass.com/templates/payroll-processing-sop). Free to use and adapt.