Reconciling payroll to the general ledger, every period

Payroll is usually the largest expense a business has, and it flows into the general ledger as a web of postings — wages, taxes, deductions, net pay, employer costs. If those postings don’t tie back to what payroll actually ran, errors hide in the books until year-end blows them open. Reconciling payroll to the GL each period is how you catch them while they’re still small.

What you’re reconciling

A single payroll run produces several figures that must agree between the payroll register and the general ledger:

• Gross wages — total earnings, matching the wage expense posted.
• Employee tax withholdings — income tax and the employee share of FICA, sitting in liability accounts until remitted.
• Employer taxes — the employer share of FICA and unemployment, an expense and a liability.
• Deductions — benefits, retirement, garnishments, each in its own liability account until paid over.
• Net pay — what actually left the bank, matching the cash posting.

The reconciliation, step by step

1. Tie gross wages in the payroll register to the wage expense in the GL for the period.
2. Tie net pay to the cash that left the bank — the number your bank reconciliation will also depend on.
3. Confirm each liability (taxes payable, deductions payable) was booked for the right amount.
4. Clear the liabilities as they’re remitted. A tax or deduction liability should drop to zero when it’s paid to the agency or provider — a liability account that only grows is a red flag that something isn’t being remitted or isn’t being cleared.

The timing differences to expect

Wages earned at period end but paid in the next period create an accrual; taxes withheld this period but deposited on a later schedule sit in a liability in between. These are normal — the point of reconciling is to distinguish a legitimate timing difference from an actual error.

Why it matters

Payroll reconciled every period means year-end forms tie to the books, liabilities are real, and the largest number in your P&L is trustworthy. Skipped, it’s where a whole year’s worth of small discrepancies wait to surface at the worst possible time.