SOPStarter

Payroll Processing SOP Template

I wrote this as a monthly payroll cycle with a clear cut-off, a review by someone other than the preparer and a record of every change. Replace the deadlines with the ones your payroll calendar uses.

Purpose

Pay every employee the right amount on the right date, with the right deductions, and keep records that show how each payment was worked out.

Scope

Covers one regular payroll cycle from collecting changes to filing returns and archiving records. Year-end reporting, final pay for leavers with disputes and one-off bonus schemes are separate procedures.

Roles and responsibilities

RoleResponsibility
Payroll administratorCollects changes, prepares the payroll, produces payslips and files returns.
Payroll reviewerChecks the prepared payroll against the previous period and the source documents. Must not be the preparer.
Finance approverApproves the payment file and releases the bank transfer.
HRSupplies starters, leavers, contract and pay changes with the approvals attached.
Line managersApprove timesheets, overtime and expenses by the cut-off.

Prerequisites

  • The payroll calendar with the cut-off, approval, pay and filing dates for the year
  • Current tax tables, social contribution rates and pension rules in the payroll software
  • The employee master file with verified bank details and tax codes
  • Approved timesheets, absence records, overtime and expense claims
  • Access limited to named people, and a second approver for the bank release

Procedure

  1. Announce the cut-off. Remind HR and managers of the input deadline at least three working days before it. Changes received later go into the next period unless the finance approver agrees an exception.
  2. Collect and log changes. List all starters, leavers, pay changes, absence, overtime, bonuses, loans and deductions with the approval attached. Reject any change without written approval.
  3. Update the master file. Enter the changes in the payroll system. Verify new bank details by a second route, such as calling the employee on a known number, before they are used.
  4. Run the payroll calculation. Process gross pay, tax, social contributions, pension and other deductions in the payroll software. Save the results as a draft.
  5. Reconcile against the previous period. Compare each employee with last period and investigate every difference above the threshold you set and every new or missing name. Compare the total with last month.
  6. Independent review. The payroll reviewer checks a sample of changes against source documents, tests the calculation for a few employees by hand and signs the review.
  7. Correct and approve. Fix anything found, run again and send the final payroll summary to the finance approver, who checks the total against budget and approves it in writing.
  8. Create the payment file. Export the bank file, check that the total and number of payments match the payroll summary, and send it to the bank through the approved channel only.
  9. Release payment. A different person from the preparer releases the transfer before the bank cut-off, so employees are paid on the pay date. Keep the bank confirmation.
  10. Issue payslips. Make payslips available through your secure portal or send them individually. Never send a batch of payslips to a shared mailbox.
  11. File returns and pay authorities. Submit tax and social contribution returns, and pay the amounts due by their deadlines. Record the reference number of each submission.
  12. Archive and record. Save the final payroll, reviews, approvals, payment file and filings in the access-controlled folder, and keep them for the period the law in your country requires.

Revision history

VersionDateAuthorChange
1.0[Date][Name]First version

Assign this SOP to your team and track who has read it

The Word export uses the docx library (MIT licence).

How it works, and what stays on your device

Download the template as a Word file or as Markdown. Both are built in your browser from the text on this page, so nothing is uploaded and nothing is sent to a server.

Copy to Google Docs puts the template on your clipboard as formatted text, then opens a new Google Doc in another tab. Paste it there with Ctrl+V, or Cmd+V on a Mac. Google only sees what you paste.

Fill in the square brackets, change anything that does not match how your team works, and add a row to the revision table each time you change it.

Frequently asked questions

Why does the reviewer have to be a different person?

The person who prepares the payroll is the least likely to spot their own mistake. A second person also stops one person adding a fake employee or changing their own pay.

Is this a replacement for payroll software?

No. It is the procedure around the software: who collects what, who checks it and who approves it. The calculation itself happens in your payroll system.

How long must payroll records be kept?

That depends on your country and the type of record, so check with your accountant or tax authority and write the period into step 12.

What if someone gives us a late change?

Follow the cut-off. Put the change in the next period, or let the finance approver agree a written exception with a separate payment and review.