Andrew Blench, SBM consultant at School Business Partner, give his top tips to ensure your payroll reconciliation is as accurate as possible
To start this article I’ll take you back to a conversation I recently had with a school business manager who was new to the post.
Me: “So what do you do with the payroll report when it arrives each month?”
SBM: “I enter the totals from the report in FMS, get the head to sign it, and then file it away.”
Me: “Does anyone check any of the details within the report for accuracy? Either you or the head?”
SBM: “I don’t, and I don’t know if the head does. That’s how the last SBM told me to do it.”
Me: “How closely has your schools budget outcome matched the budget forecast in previous years?”
SBM: “It’s always been way off the mark. Do you think this might have something to do with it?”
I hope that doesn’t reflect your own situation, but I suspect that it may be a more common scenario than we think. Here is an introduction to payroll reconciliation, why it is important, and some tips on how this can be approached.
What is a payroll reconciliation?
In essence this is about checking that the information that has been used in your payroll is correct, that totals and percentages have been calculated correctly, and that they balance.
The checking of the arithmetic is usually fairly straightforward and, provided that formulae and percentages used (Employers’ NI, for example) are correctly entered in any spreadsheets, the room for mistakes is minimal.
By the time the monthly payroll report has reached you these basic arithmetic checks should have been completed by your payroll provider. A quick way to check is to click into any fields in an excel spreadsheet which include a formula and check the logic contained within it. If the cell includes a SUM calculation check which cells it has included e.g. A1:A32 and ask yourself, ‘Is this the right range of cells?’ If a calculation refers to a value held elsewhere in the spreadsheet is the value correct – because if this value contains out-of-date information every teacher’s salary will be incorrect as a result.
The SBM will also want to know that the payroll report is correct in relation to other aspects. For example, are staff being paid for the correct number of hours, on the right salary scale points, for the right number of weeks as reflected in their employment contracts? The payroll person will not know the context of a person’s employment and will act upon the last instruction they received until told otherwise.
So, one function of payroll reconciliation is ensuring that what people are being paid reflects the contractual commitments which have been made to staff – another is whether the amounts you are going to be paying staff, as reflected in the payroll report, match your budget forecast assumptions for each member of staff.
Why is it important?
Meeting HMRC and pensions obligations
It is vital that employers have an assurance that they are meeting their obligations in terms of making deductions for National Insurance, PAYE and pensions.
Audit includes testing of payroll processes
Any external audit will most definitely look at payroll controls and processes. An auditor will expect to see evidence of the reconciliation and checking of the payroll report on a regular basis.
It’s going to be published somewhere
The amount you have paid to employees will be published somewhere. In an academy trust totals will be published in your annual accounts and trustees’ statement; in a local authority school it will appear in the LA reports to the DfE. It needs to be accurate.
Personal implications of under/over payments of salary
When reconciliations are not done, or are done incorrectly, salary under or over payments can continue for extended periods undiscovered.
Budget impacts
For most schools their spend on employment costs is in the range of 75-85% of overall expenditure. Regular checking of salary reports and reconciliations ensure that budget forecasts match actual expenditure more closely.
Things to look out for
HMRC and pensions deductions
Whilst the SBM should be able to trust their payroll provider to make correct calculations in terms of the amounts of NI/tax/pensions, it is advisable that a short check is made comparing deductions for each employee between the current month and the previous month; if the amounts have changed significantly from one month to the next do you have an explanation as to why? Also if, when scanning down a report, you notice members of staff with no HMRC/pensions deductions, is there a reasonable explanation as to why this is the case?
Don’t assume that the starting point is correct
When I started my first SBM role I assumed that the information payroll was using to pay staff reflected the contracts of employment of staff working in my school. I discovered very soon that it is wrong to assume! The assumption I had made was that any agreed changes to a person’s contract of employment had been communicated to the payroll provider, and that these had also been recorded in my budget planner software as well.
The reality is that most people do not understand their payslips, or take too much interest in what they say as long as they are paid roughly the same amount each month. A top tip would be, on commencing any new role – or taking on this responsibility for the first time – to go back to the beginning. Get out every staff personnel record and note what these say about each person’s scale point, hours and weeks; then check that this matches what is in your budget planner and what the payroll report contains.
Check the names
I have known staff costs to be included in my payroll report for staff who work at another school which is not a part of my trust.
Have a robust process in place for changes
How are changes to staff contractual entitlements decided in your setting? How do any changes which have been agreed find their way into your budget planning software and get communicated to your payroll provider? How are salary progression decisions made and actioned in your context? You will need to understand this and know when any agreed increases should start to be reflected in your monthly payroll report.
Record everything
Record the approval of the monthly payroll by the appropriate person as detailed in your finance policy document. Ideally you should receive a draft payroll report a week before it is implemented from your payroll provider. Record any queries you have raised.
Overtime
Some overtime is difficult to predict – for example, your caretaker’s emergency call outs – but other overtime payments should not be a surprise when you see them on your payroll report. I am aware that, in some settings, there is a culture of entitlement when it comes to overtime or casual hours, the attitude being ‘I put the extra hours in; therefore, you should pay me’ – often with no discussion having taken place with a more senior person to check that working the extra hours in the first place is appropriate or authorised. To bring some sense of control to this I introduced a process of pre-authorisation of additional hours within my last setting.
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