The Gap Between Payroll and the Timesheets
Two systems count the same hours and disagree. How to run the reconciliation, what the difference usually consists of, and what the residue means.
Payroll against timesheets for one department, one month
Audited; reconciled to the bank.
What people recorded.
Leave and sickness, recorded in one system only.
Part-months nobody prorated.
Worked and paid; recorded against nothing.
The gap was 354 hours, and three-quarters of it had a dull explanation that took a morning to find. The remaining 74 hours are the figure worth watching, and it is about 1.6 per cent. One employer's own month, not a benchmark.
Payroll and the timesheets count the same hours and disagree, usually by five to fifteen per cent on the first run. The reconciliation is a subtraction and an afternoon of asking, and it is the single most informative exercise available to anybody starting on labour costing.
The record examined in “The Gap Between Payroll and the Timesheets” is strongest when it is created close to the work and remains open to correction. A team evaluating a practical digital payroll timesheets workflow for digital payroll timesheets can connect time with projects and work categories, provided people can review entries before they influence payroll, billing or cost reports.
Most of the difference is dull. The part that is not dull is the part worth having.
Additional context for “The Gap Between Payroll and the Timesheets” is available from Canada Revenue Agency payroll guidance. Current legal, payroll, tax and accounting requirements should be confirmed for the relevant jurisdiction.
The subtraction
Payroll hours for the period, by department, against timesheet hours for the same period and the same people. One number each.
Both have to be the same population: the commonest false difference is comparing a department in payroll with a slightly different department in the time system.
The four dull causes
- Absence recorded in payroll and not on timesheets, or the reverse.
- Part-months for leavers and joiners, prorated in one system only.
- Overtime paid in a different period from the one it was worked.
- Population differences — contractors, secondees, people on two cost centres.
These account for most of the gap and each is a query.
The residue
What is left after the four are removed: hours paid and recorded against nothing at all. This is the number that matters, and it is usually between one and four per cent.
It is not idleness. It is the measure of how much of the week the recording system does not see.
Why the residue matters
Because every rate built from timesheet hours is understating the hours by that amount, and every job's cost is understated in proportion.
A two per cent residue is small. An eight per cent residue means the job costs are systematically light and the rate is too low.
Which direction the gap runs
Timesheets below payroll is normal and means unrecorded time. Timesheets above payroll is abnormal and usually means double booking, a population error, or hours recorded against a period they were not worked in.
The second needs investigating rather than explaining.
Running it monthly
Once the four dull causes are mapped, the reconciliation takes minutes and can be automated. Monthly is right: quarterly lets a systems change run for a quarter unnoticed.
A sudden movement in the residue almost always means a change somewhere in the recording, not a change in behaviour.
Who should run it
Whoever owns the costing, with payroll's cooperation. Not payroll alone, because they have no reason to care about attribution, and not operations alone, because they do not have the audited figure.
The conversation it requires is short and it rarely has to be repeated.
The awkward finding
Occasionally the reconciliation shows a department whose timesheets match payroll exactly, every period, to the hour. That is not excellence; it is a timesheet being completed from the payroll figure.
Exactness is a warning sign, not a target.
What to do with the residue
Not allocate it. Leave it visible as a line called unattributed, with its own figure, in every costing report.
Allocating it proportionally across jobs makes the arithmetic balance and destroys the only signal that the recording is incomplete.
Reducing it
By making recording easier and closer to the moment, not by chasing individuals. The residue is a property of the system, and in most operations it falls when the job list is shortened and entry moves to daily.
Doing it the first time
Expect a large number and expect the first reaction to be that the timesheets are wrong. They are, in part, and so is the assumption that the gap is anybody's fault.
Running it once and presenting the four dull causes alongside the residue is what turns an alarming figure into a work list. Running it once and presenting only the headline gap produces a defensive quarter and no improvement.
Automating it
Once the four causes are mapped, the whole reconciliation is two queries and a subtraction, and it should run with the period close rather than when somebody remembers.
Automated, it becomes an early warning: a residue that jumps from two per cent to six in one month is almost always a systems change somewhere, and finding it in week one is much cheaper than finding it at the year end.
The line to publish
"Payroll 4,742 h; timesheets 4,388 h; explained 280 h; unattributed 74 h (1.6%)." One line per department per month.
Published, it stops being a secret of the costing team and becomes a number people improve. Unpublished, it is rediscovered every two years by somebody new and treated as a scandal.