How to Catch Payroll Errors Before They Hit a Paycheck

Payroll errors cost companies more than just money, they damage employee trust, create compliance risks, and generate unnecessary stress for your team. A single mistake in overtime calculations can lead to legal penalties. An incorrect deduction can trigger a flood of questions to HR.

Even small errors compound quickly, especially during year-end reporting. The good news? Most payroll mistakes are preventable if you build the right systems and habits before processing each pay period.

This guide walks you through five concrete steps to catch errors before they reach employee paychecks. Whether you're new to payroll or training someone on your team, these steps will help you establish a reliable, repeatable process.

Step 1: Create Your Payroll Control Sheet (2-3 Days Before Payday)

What it is: A control sheet is an Excel spreadsheet that lists all active employees, their standard pay rates or salaries, and the expected totals for the current pay period. It serves as your baseline to compare against actual payroll data.

Why it matters: This sheet helps you immediately spot anything unusual—like a missing employee, an unexpected pay rate change, or hours that don't add up.

How to create it:

1. Open Excel and create columns for: Employee Name, Employee ID, Pay Rate/Salary, Regular Hours Expected, Overtime Expected, Total Expected Pay, Actual Hours Entered, Actual Pay Calculated, and Variance.

   
   

2. Fill in the expected data based on your standard pay period (for example, 80 hours for a full-time biweekly employee earning $25/hour would be $2,000 expected pay).

   
   

3. After entering payroll data in your system, export a payroll report and compare it line-by-line to your control sheet.

   
   

4. Investigate any variances immediately. A $100 difference might be legitimate overtime—or it could be a data entry error.

   
   

Pro tip: Start preparing payroll at least 2-3 days before the pay period ends. This buffer gives you time to fix issues without rushing.

Step 2: Verify Hours and Timecards

Before running payroll, confirm that all employee hours are entered and approved. This is especially critical if your company uses physical or electronic timecards.

What to check:

• Timecard submission: Have all employees submitted their timecards? Check your payroll system's pending approvals list.

  
  

• Manager approvals: Confirm that managers have reviewed and approved hours. Unapproved timecards often contain errors.

  
  

• Overtime calculations: For hourly employees, verify that overtime is calculated correctly. In most states, overtime is 1.5x the regular rate for hours over 40 in a workweek. For example, if an employee worked 45 hours at $20/hour: Regular pay = 40 hours × $20 = $800; Overtime pay = 5 hours × $30 = $150; Total = $950.

  
  

• PTO and sick time: Check that approved time-off requests are reflected in the system. Missing PTO entries are a common error.

  
  

Common mistake: Forgetting to add holiday hours when the system doesn't automatically apply them. If your office was closed for a holiday, make sure those hours are entered manually if needed.

Step 3: Review Employee Changes and Special Pay

Payroll is often the last department to hear about employee changes, which means errors can slip through easily. Before finalizing payroll, review any changes that affect pay.

What to verify:

• New hires: Ensure new employees are set up in the payroll system with the correct pay rate, tax withholdings (W-4), and direct deposit information. Verify that their start date aligns with the hours being paid.
  

• Terminations: Confirm that terminated employees have been removed from the active payroll roster or marked as inactive. Calculate any final pay owed, including unused PTO if applicable.
  

• Raises and promotions: Check that recent salary increases are reflected in the system. A promotion effective mid-pay-period may require a manual adjustment.
  

• Bonuses and commissions: Add any one-time payments such as performance bonuses or sales commissions. These are often processed separately and must be entered manually.
  

• Retroactive pay: If an employee is owed back pay due to a previous payroll error or delayed raise, calculate the retro amount and add it to the current paycheck.
  

• Benefit deductions: Verify that health insurance, retirement contributions (401k), and other deductions are accurate. Employees who recently enrolled or changed their benefits may have incorrect deduction amounts.
  

What to do if information is missing: If you discover incomplete new hire paperwork (like a missing I-9 or W-4), contact HR immediately. Do not process payroll for that employee until the forms are complete—this can create compliance issues.

Step 4: Run a Pre-Submission Payroll Report and Compare Totals

Once all data is entered, generate a pre-submission payroll report. This report shows you exactly what will be processed before it's finalized.

How to review it:

5. Compare to previous pay periods: Pull up the last 2-3 payroll reports and compare gross pay totals. Is the current period significantly higher or lower? If yes, investigate why. For example, if total payroll is usually around $50,000 but this period shows $65,000, that's a red flag.
   

6. Check individual employee totals: Review each employee's gross pay, net pay, and deductions. Look for anything unusual—like an employee who normally earns $2,000 suddenly showing $200 (likely missing hours) or $20,000 (data entry error).
   

7. Verify direct deposit: Confirm that all employees are set up for direct deposit unless they've specifically requested paper checks. Double-check bank account numbers and routing numbers for new hires.
   

8. Review 401(k) contributions: If employees recently updated their retirement deferral percentages, confirm that the new rates are applied. A 5% contribution on a $2,000 paycheck should show a $100 deduction.
   

Example of what to flag: If Employee A typically earns $3,000 per pay period and this period shows $3,500, ask yourself: Did they work overtime? Receive a bonus? Get a raise? If none of those apply, there's likely an error.

Step 5: Establish Communication Checkpoints with HR

Many payroll errors happen because of miscommunication between payroll and HR. Building regular touchpoints into your process can prevent most of these issues.

What to implement:

• Weekly status meetings: Schedule a brief weekly check-in with HR to review upcoming hires, terminations, and benefit changes. A 15-minute meeting can prevent hours of cleanup work.
  

• Shared payroll calendar: Create a calendar that shows payroll deadlines, cutoff dates for submitting changes, and important dates like open enrollment or year-end processing.
  

• Change notification system: Ask HR to notify payroll immediately when there's a salary change, new hire, termination, or leave of absence. An email with the employee's name, effective date, and details is sufficient.
  

Why this matters: When HR and payroll are aligned, errors like missed raises, incorrect deductions, and payroll for terminated employees become far less common. Strong communication is your best preventive tool.

Quick Reference: Pre-Payroll Checklist

Use this checklist before every payroll run:

Task	Completed?
Control sheet updated with expected totals	☐
All timecards submitted and approved	☐
Overtime calculated correctly (1.5x for hours over 40)	☐
PTO and sick time entered	☐
Holiday hours added (if applicable)	☐
New hires set up with correct pay rate and deductions	☐
Terminated employees removed or marked inactive	☐
Recent raises/promotions reflected in system	☐
Bonuses, commissions, or retro pay added	☐
Benefit deductions verified (health insurance, 401k)	☐
Pre-submission report compared to previous periods	☐
Individual employee totals reviewed for accuracy	☐
Direct deposit info confirmed for all employees	☐

Troubleshooting Common Payroll Issues

Even with careful preparation, you may encounter last-minute issues. Here's how to handle the most common ones:

Problem: Employee forgot to submit their timecard

Solution: Contact the employee and their manager immediately. Have the employee submit their hours ASAP, and if they're unavailable, use their standard schedule as a placeholder. Note that you'll need to adjust in the next pay period if the hours are wrong.

Problem: A raise isn't showing in the system yet

Solution: Manually adjust the pay rate for this pay period. Document the change and inform HR so they can update the system permanently. Calculate the difference between the old rate and new rate, then add the adjustment to the current paycheck.

Problem: New hire paperwork is incomplete

Solution: Do not process payroll for this employee until the I-9 and W-4 are complete. Contact HR and the hiring manager to get the forms signed immediately. If the deadline can't be met, the employee may need to wait until the next pay period.

Problem: Benefit deduction is incorrect

Solution: Verify the correct deduction amount with HR or the benefits administrator. Update the amount in the payroll system before finalizing. If the error has already been processed, you'll need to correct it in the next pay period and notify the employee.

Building Long-Term Payroll Accuracy

Payroll accuracy doesn't happen by accident—it's the result of consistent habits and strong communication. As you gain experience, you'll develop an instinct for spotting errors before they happen. Keep your control sheet updated, maintain regular contact with HR, and don't hesitate to ask questions when something doesn't look right.

The time you invest upfront in building these systems will save you countless hours of corrections, employee inquiries, and compliance headaches down the road. Start with these five steps, refine them to fit your company's specific needs, and watch your payroll process become smoother with every cycle.