A payroll ledger is a standard method of recording payment information of each employee, contractor or business entity who receives funds from an employer’s payroll department, and is a tool for helping the employer keep track of their business expenses. They are used to keep track of an employer’s total amount of dollar expenses when they process payroll and are normally laid out in a spreadsheet.

The primary role of a payroll ledger is to organize and determine the net payroll cost, but it plays other functions. For example, it shows the frequency of payments, employee pay totals, benefits, and other deductions and the tax withholdings. Therefore it can give you answers to questions like: “How much money did employee X earn?” “What are the benefits associated with employee X?” and “Did any deductions apply to employee X?”

Why A Payroll Ledger is Useful For A Small Business

Using a payroll ledger allows an employer or payroll employee to quickly get a full picture of the total amount of money that was spent on each individual employee. It also can serve as a backup document for tax purposes.

Benefits of Using a Payroll Ledger

Using a payroll ledger is beneficial for any small business. It helps with ensuring your payroll is accurate which in-turn reduces costs and increases efficiency. Learn more about benefits of using a payroll ledger below.

Identifying discrepancies

Payroll ledgers will ensure you have accurate information by making it easier to identify discrepancies before they result in tax penalties. This can be done by cross-referencing information in the payroll register to the payroll ledger.

Reduce costs

Ledgers help employers keep track of expenses – payments to employees, tax agencies, insurance providers, etc. – and stay within budget.

Efficiency

Instead of searching through invoices or email correspondence, employers can use their payroll ledger to quickly see the balances of accounts paid and received.

Keep data safe

Ledgers serve as an excellent form of backup documentation in the event of natural disasters, cyber-attacks, ransomware and other threats to data.

How to Use A Payroll Ledger

The procedure of using a payroll ledger will change depending on if your business has an automated payroll system/what type of system you’re using or if you’re doing the payroll process manually.

Here are some of the basics steps needed in order to use a payroll ledger:

1. Gathering data

The data about an employee should be the first thing considered when entering information into the ledger. This information includes:

• Full name
• Position name
• Full time/part time status
• Hours worked
• Pay rate
• Benefits
• Compensations
• Taxes
• Deductions
• Net pay
• Gross pay

2. Calculations

Add quantities to determine your business’s total payroll expenses, from each individual worker to the total outgoing costs.

3. Keep on schedule

Adhering to a strict schedule for entering information into the ledger will help you avoid errors and incomplete payroll records. Depending on their size and pay schedule, businesses typically update their ledgers weekly or monthly.

4. Transferring to the general ledger

Once payroll data is compiled and recorded, it can be added to the general ledger, joining the other business expenses managed by accounting departments. This step may not apply to some small businesses that treat the payroll ledger and the general ledger as one in the same.

Difference Between Payroll Ledger and General Ledger

A general ledger is a document, normally made by accountants, to store and organize financial data used to create a company’s financial statements. It provides records of all financial transactions that take place during the life of an operating company and maintains the account information that is needed to prepare the businesses financial statements. The transaction data is organized, by type, liabilities, owners’ equity, revenue, and expenses.

In contrast to a payroll ledger which only deals with employee payroll information, the general ledger deals with all financial transactions for the company.

Payroll Ledger Template

Feel free to download this free payroll ledger template to help your small business process pay for employees.

Why Make The Switch to Payroll Software

Payroll ledgers are effective tools in tracking how much your employees are costing your business. However, compiling all the necessary data and then completing calculations manually is a time consuming task. By using a payroll management software you will be able to make those calculations automatically, which will make it easier to track projects and labor costs.

Payroll software will allow employees to enter in their own information (such as hours worked), as well as check notifications in an employee portal – this way no one is wasting time tracking others down for information.

You can also record employee pay, withholdings, gross pay, and net pay quickly and without the risk of human error. Payroll automation takes care of data entry so that you can spend more time running your business, knowing that all your payroll matters are taken care of.