Managing your business might feel a bit like juggling at times. You have to keep track of the day-to-day operations (like handling sales and customers) and the big-picture things, like growing and making a profit.
So, what’s the key to figuring out if you’re making a profit? Knowing how much of your income goes toward expenses. That’s why business owners rely on tools like payroll reports to give them insight into one of their biggest spending categories, labor.
Keep reading to learn how to create and analyze payroll reports to improve your business.
What Is a Payroll Report?
Payroll reports are documents that summarize payroll data, like wages, employee hours, and payroll taxes. You can use them for many reasons, like calculating employer taxes, verifying profit calculations, and budgeting to pay your employees.
You may already be familiar with some of the payroll reports that go along with your business taxes, such as Form 944, Employer’s Annual Federal Tax Return and Form W-2, Wage and Tax Statement. We’ll cover these in more detail when we go over the different types of reports you can generate.
Payroll Report Templates
If you’re manually creating your reports, here are some free templates you can use. These three are some of the most commonly used reports you’ll need to keep your business running and make sure you’re calculating employee pay correctly.
The general report template shows line-by-line totals of hours worked, gross pay, deductions, and net pay for all employees paid during a period.
Payroll Statement Template
The payroll statement template summarizes employee hours, gross pay, deductions, and net pay for a single employee.
This timesheet template is a summary of employee hours worked and total pay.
How To Create a Payroll Report
Let’s go back to the basics now…so how, exactly, do you create a payroll report from scratch? Payroll reports usually come in a spreadsheet or chart format. The information you include depends on how you plan to use the report.
For instance, to figure out how much money you need to pay your team, you may create a spreadsheet with employee hours and their pay rates for the given pay period. Here are the basic steps to prepare any kind of payroll report:
1. Choose the Time Period for the Report
Payroll reports always summarize information over a period of time, such as a week, month, or year. The first thing you want to do is figure out which dates you’re collecting data from.
If you’re using the report for budgeting purposes, monthly and quarterly reports are most helpful. However, if you’re creating a report to help with year-end tax forms, you’ll need an annual report.
2. Outline the Information You Need to Collect
In this step, you choose the columns of your chart or spreadsheet. You can include any data that’s part of payroll, such as hours worked, employee pay rates, taxes withheld, voluntary deductions, and payroll expenses (such as the employer portions of Social Security and Medicare taxes).
If you’re calculating how much money you need for payroll, your columns might be:
- Employee name
- Hours worked
- Gross pay
- Tax deductions
- Net pay
3. Enter Data in Your Spreadsheet or Generate a Report with Software
Now that you have your time period and data columns, all you have to do is fill in the report.
Let’s say you want to see how much money you need to run payroll this month. For each employee, create an entry with their total hours, gross pay, taxes withheld, and net pay.
4. Analyze Your Report
Once you’ve filled in all the data, you can analyze it. By analyzing, we mean using your report to answer business questions.
For instance, a report that includes employee hours and wages can answer questions like:
- How much money do I need to run payroll?
- Do I have enough cash on hand to pay my employees this period?
The great thing about these reports is that you can also use them to answer several questions about your expenses and budget.
Here are just a few of the many questions you can find answers to:
- How much money have I spent on payroll so far this year?
- How much money do I have to set aside for payroll-related taxes?
- How many hours do my employees work on average?
The most important thing to remember with creating these reports is to double-check your work and ensure your data is accurate. After all, if you make mistakes on your spreadsheet, you’ll end up analyzing incorrect information.
If you want to speed up the process and eliminate data entry mistakes, you can use payroll software like Hourly to generate payroll reports. Simply choose the date range and the type of information you want to see and create a report with a click.
Types of Payroll Reports
Now that you know the basics of preparing a payroll report, let’s look at some payroll reports you may come across as a business owner.
First, we’ll cover the reports you need to submit to the government, and then we’ll dive deeper into the reports you can use to analyze your payroll data internally.
Reports That Employers Need to File
At the end of the year, you have to let the government know how much you paid employees. The government uses this information to ensure you paid your employees at least a minimum wage and withheld the required payroll taxes.
Here are the types of payroll-related reports you may need to submit to the IRS.
- Form 941, Employer’s Quarterly Federal Tax Return: Quarterly payroll reports are also known as Form 941. When you withhold taxes from employee paychecks, you need to send them to the IRS. Most businesses make these deposits every quarter (we’ll cover the annual ones in the next form). Form 941 reports how much money you withheld from your employees’ paychecks during the quarter for federal income taxes and FICA (Social Security and Medicare taxes).
- Form 944, Employer’s Annual Federal Tax Return: Form 944 is a version of Form 941 meant for small businesses that withhold less than $1,000 in employee taxes per year. If this is the case, you get to make one annual deposit instead of quarterly ones, and you report your tax withholdings on Form 944.
- Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return: Federal unemployment taxes are paid for by you, the business owner, instead of the employee. You’re required to pay the FUTA tax (which is 6% on the first $7,000 paid to an employee) for any employee that works more than 20 weeks in a year or earns $1,500 in a quarter.
- Form W-2, Wage and Tax Statement: Form W-2 shows how much you paid an employee over the year and how much of that salary was withheld for taxes or voluntary deductions (like health care benefits). You have to file a W-2 form for every employee you paid during the year and send a copy of it to the employee, who uses information on the W-2 to file their personal income tax return.
- Form W-3, Transmittal of Wage and Tax Statements: Form W-3 acts as a cover sheet for your W-2s when you submit them to the IRS. In other words, it’s a summary form that provides the total of all your W-2 numbers added up. If you file any W-2 forms (even just one), you must also send a W-3 form to the IRS. You don’t need to send your W-3 to the employees.
- Form 1099-NEC, Nonemployee Compensation: Form 1099-NEC reports all nonemployee compensation, which means any money you paid to independent contractors or freelancers you hired for the business. You must file a form for each nonemployee you paid more than $600 during the year. Like the W-2 form, one copy goes to the government and the other to the freelancer.
- State pay reports: If you have to deduct state income taxes from your paychecks, your state will likely have its own end-of-year tax form for you to fill out and submit. If you pay state unemployment taxes, you’ll likely have to fill out a form for that too.
- Local pay reports: Local governments that have an income tax may also have their own tax forms for annual payroll reports.
Reports for Internal Use
Besides the government-required reports, you may also use multiple reports for internal tracking and cross-checking other financial reports, such as your income statement or balance sheet. These can include reports like paid time off (PTO) report and your payroll preview report, which are both examples of a type of payroll report.
Here are some of the common internal reports, along with the payroll information they include:
- Payroll summary report: You can run this report to get a big-picture view of your payroll data for a given reporting period. It typically includes employee wages paid (gross and net) plus tax withholdings and voluntary deductions.
- Pay statement: Payroll information for a single employee that is distributed along with pay stubs.
- Payroll details report: This report gives you a line-by-line picture of an employee’s paycheck history so you can see how someone’s compensation changed over time.
- Payroll preview report: This is similar to the payroll details report since it provides line-by-line paycheck data so you can visualize your next payroll.
- Liability report: You can use this to figure out how much money you need to run your next payroll. It includes the total for wages payable and your employer tax liabilities (like FICA and FUTA).
- Payroll service charges: It’s a summary of your payroll expenses that aren’t related to wages and taxes. Typically, it is an invoice history if you outsource to a payroll provider or use an online payroll system.
- Employee summaries: It’s a summary of payroll data for an individual employee, including contact information, pay rate, hours worked, and cumulative pay. These are especially useful when preparing your W-2 forms.
- Payroll tax liability report: It tracks how much tax you’ve withheld so far, how much you have deposited to the government, and how much payroll taxes you still owe.
- Voluntary contributions reports: It monitors how much you’ve deducted from employee paychecks for voluntary contributions, like money put toward retirement plans or health care benefits.
- Paid time off (PTO): If you offer PTO as an employee benefit, you can run this report to see how much PTO your employees have taken and how much each has left. This can help you predict when your employees will request time off and adjust your schedule accordingly.
- Workers’ compensation insurance report: This report helps calculate your insurance premiums by multiplying the right insurance rates by the relevant payroll. For instance, you pay a lower premium rate for low-risk employees (like admin workers) and a higher one for employees that are high-risk (such as construction team members). Or you can use Hourly, which syncs your payroll directly with your workers’ comp so your premiums are automatically calculated and always accurate.
- Unpaid employees report: If there’s an error with paying an active employee, you can generate a report to find it. For example, someone may have changed their direct deposit information, preventing the payments from going through. This report helps you catch those errors and ensure all your employees get their paychecks.
Payroll Report vs. Pay Statement vs. Payroll Summary
As you run your business, you may hear the terms “pay statement” and “payroll summary.” Are these just other ways of saying payroll report?
Instead, they’re both specific types of payroll reports. Let’s take a look at what each one contains.
The pay statement (also known as a wage statement) is a report you give to your employees. It tells them their gross wages, taxes withheld, deductions, and net pay for the current pay period and so far during the year. This information often gets distributed along with pay stubs so employees can track their total earnings.
On the other hand, a payroll summary is a snapshot of your total payroll data for a given period. For instance, you can run a payroll summary for the last quarter and see how much wages you paid, taxes you withheld, and voluntary contributions you deducted during that time.
Mastering Payroll Recordkeeping with Software
Payroll records are an excellent tool to have at your disposal. They help you keep track of one of your most significant expenses and ensure you have enough budget to fund employee paychecks.
Now that you know how they work, all you have to do is open up your accounting software and fill out those templates. Or you can make your life even easier by streamlining your payroll process and opting for software like Hourly that lets you run payroll and generate reports with the click of a button.