A payroll ledger is a spreadsheet that provides detailed information about employees in your organization and simplifies payroll processes.
The spreadsheet must give answers to questions such as, “How much money did Employee X earn?” “What are the benefits associated with Employee X?” and “Did any deductions apply to Employee X?”
This blog explores what a payroll ledger is and how you can successfully come up with one.
Understanding a Payroll Ledger Better
Besides the primary role of a payroll ledger being the organization and determining the net payroll cost, it plays other functions. For instance, it shows the frequency of the payments, employee pay totals, benefits, and other deductions and the tax withholdings.
As a business, you could be in business with another company; hence the ledger will clearly show the business-to-business expenses. This is why accountants use a payroll ledger as a tool for preparing balanced budgets. Additionally, it acts as backup tax documentation.
It comes with endless benefits, especially when you sharpen the way you craft one. For instance, it helps in showing the frequency of payment to different employees. This is relevant since, at times, there is a disparity in the payment modes amongst the workers. Some could be in short-term employment contracts with specific payment intervals, while some could be freelancers with a completely different payment mode. With a payroll ledger, you’ll see the disparity.
Through it, you easily see the tax withholdings within a specific financial period and the employee pay totals. Additionally, you never struggle in understanding the benefits, contributions, and any other deductions you make as a firm. Therefore, whenever you skip any figure, you’ll never fail to notice it. This keeps your operations in line with the employment laws.
How to Use a Payroll Ledger
For you to benefit from the ledger more, you and your team need to master it well. An efficient usage makes it serve the purpose right. Generally, there are factors that influence the process of using a payroll ledger. For instance, it depends on whether the employees are manually running the payroll or capitalizing on the automated features using the software.
It’s significant to first determine the specific data sets before performing the calculations. This way, you will not struggle in adding the quantities vertically or horizontally. Another important thing is always adhering to the schedule.
Doing this keeps you safe from omitting crucial data in the payroll and avoiding mistakes. Upgrading the ledger weekly or monthly is a good take.
The other crucial thing is coming up with a schedule for entering the data. If it works perfectly fine for you, consider sticking to it religiously. This way, you stand no chance of having inconsistency in developing the ledger. No one likes to have incomplete payroll records, which brings confusion, especially when tracking a certain payment.
Finally, consider transferring the records to the general ledger. After finishing compiling and recording the payroll ledger, think of the other business expenses. Your accounting departments can easily achieve this by including the data in the general ledger. Having a common reference point for all the business expenses saves your team a lot of time. Small business startups treat their general ledger as a payroll ledger due to their small data, which tends to work sometimes. However, separating the two prepares the company for a future increase in records.
How to Build a Payroll Ledger
First, choose a format. A Ms-Excel spreadsheet can be a worthy option if you don’t have software. Use the “Table function” available in the program. Come up with six columns on the page.
From here, proceed to name each one of them. Begin by the first one and name it as “Employee ID” or “Employee name.” The second column captures information on the “pay period.” You may need to indicate the start and end date to make it more organized.
In the third column, mark it as “Gross pay.” It’s usually the information on your workers’ salaries before the benefits, contributions, and tax deductions.
We now go to the fourth column, which captures “Tax deductions.” It typically entails withholding your employees’ pay as a result of the state, federal and local taxes.
To make the column neat, consider summing up all the taxes. However, you’re allowed to come up with small sub-columns for each tax classification.
Then proceed to the fifth column capturing the “Other deductions.” At this point, you include all the employees’ benefits, such as life insurance. If, as a company, offer any benefits depending on your policies, include such benefit packages. Again, summing everything up or separating the categories is a choice you have.
Finally, you have your sixth and last column showing the “Net pay.” It indicates the payment going to an employee after the net taxes and deductions.
This is usually the value that reflects in a worker’s final income statement. Consider following the same procedure when building the payroll ledger, and you’ll always have consistent accuracy in the task.
A payroll ledger is an essential document for managers. They act as tools for keeping things more organized as you can easily track the payrolls to different employees.
Benefits include high accuracy and the safeguarding of data. However, for you to make the best from these ledgers, know how to use them. Most importantly, understand how to develop one. The procedure is straightforward as all you need is the basic concept.