Payroll reconciliation is the month-end habit of proving that the numbers in your payroll software agree with the other places the same money shows up: the HR headcount, last month’s payroll, the statutory challans, the bank file and the books. A payroll that has not been reconciled is just a payroll that has not been caught out yet.

A check sequence that works

Do these in order, because each step narrows what the next one has to explain.

1. Headcount. Active employees in payroll should equal the HR master after joiners and exits, and the headcount figure should match attendance.
2. Month-on-month movement. Compare gross, deductions and net payable with last month, and explain every employee whose pay moved by more than a threshold you set.
3. Gross to net. Re-add the components in the register and check them against the register of wages.
4. Statutory totals. PF in the register against the ECR, ESI against the ESI challan, TDS against the amount to be deposited, and professional tax against the state challan.
5. Bank file. Count and total of the file against the net payable, then against the bank statement after credits, including returned payments.
6. Ledger. The payroll journal against the register, with salary and statutory payable accounts clearing to nil once paid.

An example of explaining a variance

Net payable rose from Rs 48,50,000 to Rs 49,10,000, a movement of Rs 60,000. Joiners added Rs 95,000, exits removed Rs 70,000, increments added Rs 40,000, arrears added Rs 15,000 and LOP removed Rs 20,000. That sums to Rs 60,000, so the movement is fully explained. Whatever is left over after such a walk is the error.

What usually causes breaks

• Mid-month joiners and leavers prorated on a different day count in payroll and in HR.
• Retro changes processed after the register was locked.
• An off-cycle run left out of the month’s statutory totals.
• Bank account edits made after the file was generated.

Frequently asked questions

How is reconciliation different from a payroll audit?

Reconciliation is routine and done by the payroll team every month. An audit, internal or external, samples the whole process periodically and tests controls, which our HR audit entry covers.

Who should do it?

Someone other than the person who processed the run, where team size allows. If the same person calculates and reconciles, at least have finance sign off the bank file total.

When should it be finished?

Headcount, variance and bank-file checks belong before salary is released, so errors are fixed before money moves. The statutory tie-outs must be done before the 7th for TDS and the 15th for PF and ESI deposits.

Pair it with our guide to payroll processing, or try the payroll cost calculator for a sense check on total spend.