Payroll Reports Explained: Types, Benefits & More
May 23, 2023
If there is one vital element that helps keep your business’s expenses and financial obligations in check, it has to be the payroll report.
Fulfilling your tax responsibilities, ensuring your employees are properly compensated, and securing a steady cash flow are integral components of a well-oiled company. That’s all the more reason why you need a systematic way to track all the money that goes in and out of your company.
This article will show you why preparing a payroll report is important for your business in the long run and cover some important payroll practices.
Let’s dive right in!
- A payroll report is a compilation of information about the wages, tax withholdings, deductions, and salary adjustments for each employee in a given pay period.
- Using payroll reports effectively regulates cash flow, boosts employee morale, elaborates employee turnover rates, and helps manage a business’s expenses.
- Examples of payroll reports include employee payroll, company payroll, federal payroll, state and local payroll, retirement contributions, and time tracking reports.
- Generating a payroll report depends on the company’s payroll cycle and the government’s requirements.
- Payroll records can be created either weekly, biweekly, semi-monthly, monthly, quarterly, or annually.
What is a Payroll Report?
A payroll report is a type of record or document that reflects an employee’s completed work hours in a given pay period. It can include pay rates, gross wages, tax withholdings, benefits and contributions, net wages, accrued overtime pay, and paid time off.
Regardless of size and industry, businesses are obliged to prepare payroll reports every three months according to the IRS’s requirements.
More importantly, the IRS can use the essential employee or employer tax information included in a payroll report to check whether business owners are dutifully carrying out their tax liabilities.
Conversely, payroll documents provide detailed accounts of a company’s budget, operational and labor costs, and other expenditures.
Benefits of Using a Payroll Report
Apart from ensuring complete compliance with tax regulations and providing a reference for a company’s finances, using a payroll report also offers the following benefits:
- Regulates cash flow. It is critical to have a concrete idea of your accrued costs and segregate which expenses are a priority from those that are not. Payroll reports summarize your company’s expenses, savings, and possible financial risks.
- Protects employees. A payroll report offers a safety net for employees, particularly with their tax obligations. Consistently updated payroll reports come in handy in case the IRS conducts a surprise audit on the company or an employee’s taxes.
- Promotes an ethical work environment. One way to boost employee morale and establish trust within the company is by providing solid proof that employees’ salaries, dedicated work hours, taxes, and benefits are properly compensated and settled.
- Manages financial reports. Payroll reports are the starting point for several other financial reports that companies must fulfill. These financial reports include tax returns, balance sheets, cash flow statements, profit and loss statements, and accounts receiving aging reports.
- Demonstrates employee turnover rates. Employee turnover rates indicate the satisfaction level of workers with their job and the company. A high or low turnover rate is directly influenced by the company’s payroll management system.
Types of Payroll Reports
The following are the different types of payroll reports:
#1. Employee Payroll Reports
Essentially, payroll reports are the pay stubs released by employers every pay period. Also called employee earnings reports, they contain individual summaries of each employee’s salaries, pay rates, tax withholdings, and other deductions.
Typically, employers prepare and send reports to each of their staff. Employees should be granted complete access to their individual reports. Doing so enables them to review the accuracy of the data provided by their employer about their wages and deductions.
Accomplishing employee payroll documents also demonstrates transparency on the employer’s part.
#2. Company Payroll Reports
Company payroll reports provide a comprehensive outline of a business’s payroll costs over a given timeframe. These reports help business owners manage their company finances and prepare and adjust their budgets for upcoming operational expenses.
Summaries of a company’s payroll costs and tax responsibilities serve as proof that a business religiously accomplishes its federal, state, and local tax duties.
#3. Federal Payroll Reports
Federal payroll reports detail the quarterly and annual wages disbursed by employers to their employees. These reports help the government determine the taxes owed by a company.
In truth, federal payroll reports comprise specific IRS documents. These documents are:
- Form W-2. Wage and Tax Statement
- Form 940. Employer’s Annual Federal Unemployment (FUTA) Tax Return
- Form 941. Employer’s Quarterly Federal Tax Return
- Form 944. Employer’s Annual Federal Tax Return
- Form W-3. Transmittal of Wage and Tax Statements
#4. State and Local Payroll Reports
State and local payroll reports differ by location. Each state has a specific set of regulations when it comes to reporting income taxes and unemployment tax returns.
Local payroll reports are submitted quarterly or annually. It is best to confirm with the authorities in your city or county about the deadlines for the documents.
#5. Retirement Contributions
Employers offering retirement plans to their workers are required to provide a complete account of their retirement contributions. In this manner, it will be easier to assess the amount to share in an employee's retirement plan.
#6. Time Tracking Report
Time tracking reports are ideal for when employees use timesheets to record the hours they render for a specific task or project. This report comes in handy for companies that offer outsourcing services to different clients.
The company’s project managers will collate and combine all the rendered hours for the project, calculate the corresponding rates for the work hours, and bill the yielded amount to the client.
Employers also use time tracking reports to evaluate employee performance and observe how they maximize their billable hours to complete each task.
When Can You Generate Payroll Reports?
Payroll reports are generated depending on the company’s payroll cycle. At the same time, the frequency at which payroll reports are created must coincide with the specified tax filing and report submission deadlines set by the IRS and the state and local authorities.
Enumerated below are different pay periods when payroll is prepared:
- Weekly. A weekly payroll is a common payroll report example, particularly for companies hiring hourly workers. Workers are paid weekly, and the report is also created after a work week is completed. An average of 40 work hours is typically recorded in a weekly pay period.
- Biweekly. In a biweekly payroll, employees are paid once every two weeks, usually every other Friday. There are 26 biweekly payrolls in a given year, which means an employer that follows the biweekly pay cycle is expected to generate the same number of payroll reports annually. Employees who are paid biweekly are expected to complete a maximum of 80 work hours.
- Semi-monthly. Semi-monthly and biweekly payrolls are quite similar in that employees are paid the same number of times in a month. The only difference is the dates when the pay stubs are released. In a semi-monthly payroll, employees receive their salaries every 15th and 30th or 31st of the month.
- Monthly. A single paycheck is disbursed to each employee every month. Since there are 12 months in a year, employers must create 12 payroll reports in response. A monthly pay cycle is more common in companies hiring salaried employees.
- Quarterly. Preparing quarterly payroll documentation means compiling all the compensation earned by employees covered within the said period. The report also contains federal, state, and local tax return information.
- Yearly. Also called a total annual payroll, yearly payroll records contain all wages paid, taxes withheld, benefits, contributions, bonuses, vacation, and sick-leave payments, as well as all other salary adjustments implemented by employers to each employee’s paycheck.
Payroll Reports Best Practices
A single mistake in your payroll report could potentially lead to an IRS audit or even a complaint from your employees. Not only that, a lack or excess thereof in the values reflected in your payroll expenses and accruals pushes your business’s finances down a downward trajectory.
So how do you avoid all that? Check out some of the best practices for maintaining accurate payroll reports in the section below!
#1. Understand Your Business Needs
If you run a startup or hire hourly employees, a monthly pay cycle may not be a good fit for your workers. Similarly, the time period might be a bit of a stretch when calculating your labor costs and business expenses.
Choose a pay cycle that coincides with the number of employees you have and the nature of your services. The key is to establish a reporting system that lets you meet your business and employees’ needs while also adhering to federal and state requirements.
#2. Hire an Accountant
It is a must to prioritize yielding accurate values for your payroll data. Employing the expertise of a professional who is well-versed in managing your company’s expenses can prove beneficial for your business in the long run.
You can rely on an experienced accountant to aid you in determining the individual salaries of each of your staff and figuring out the coverage of your tax liabilities.
#3. Use a Pay Stub and Form W-2 Generator
Using online generators to prepare wage statements and tax forms saves time and resources. Most of the time, these generators have all the essential fields prepared for you, and all you need to do is fill them out with the correct employee information.
Pay stub and Form W-2 generators also minimize errors and have built-in calculators, so you can calculate taxes and deductions and generate precise results.
#4. Install Automated Time In and Time Out System
Companies that compensate hourly employees should find solutions to automate how their workers track their work hours. An automated system to clock in and out of work and record all hours rendered helps minimize errors in tracking individual employee time.
Zero errors in timesheets also means a more accurate and reliable payroll report.
More importantly, electronically recorded work hours instantly update HR records, making it convenient to track any overtime hours and remaining paid time off.
#5. Review the Reports
It is not enough to prepare and submit payroll reports. Business owners should take the time to analyze the payroll data and discuss the values with their human resources and finance personnel.
A payroll report is a valuable tool for planning and budgeting a company’s payroll expenses ahead of time. It does not matter whether the company is doing well or poorly with its finances. Also, payroll records give a clearer idea of whether employees are happy with their current employment status or need help from management to improve their work morale.
Payroll Report FAQ
#1. What is another name for payroll reports?
Payroll reports are also called employee earnings reports, payroll records, payroll statements, or payroll documents. All terms pertain to the combined information about an employee’s wages, deductions, and tax withholdings in a pay period.
#2. What is a payroll report for the self-employed?
A self-employed payroll report applies to sole proprietors, partnerships, and Limited Liability Companies (LLC). Creating a payroll report for the self-employed depends on the structure of their business venture and how the individual chooses to be paid.
For example, a self-employed individual may prefer earnings in the form of distributions or dividends. Some may find it more suitable to have a regular salary.
#3. What are annual payroll reports?
Annual payroll reports include all records and tax forms used by companies to recount their income and losses, private consultant payments, and unemployment taxes.
A trustworthy and responsible employer understands just how imperative it is to keep their expenditures and budgeting under control. By consistently generating payroll statements, employers strike the perfect balance between their obligations to their staff and to the government authorities.
Furthermore, payroll reports underscore key areas where a business may regulate its expenses and enhance how operational and labor funds are distributed.