You have your accounting system, and then you have your payroll. Some businesses have a direct interface between the two systems and others do not, for a wide variety of reasons. Perhaps they are using industry-specific accounting software, where an interfaced payroll system is not available, or maybe a payroll service is used and there is no interface available. Whatever the reason, there are some real reasons to consider interfacing your accounting software with your payroll. Consider these benefits of having an interface between the two systems.
If you are using a standalone payroll system, that system will be accruing labor expenses and liability payments such as taxes, FICA, Medicare, and 401K etc. Those payments are liabilities that affect your financials. If the liabilities are not posted in your accounting system, your financial information will be inaccurate until it is posted there. By using a system that is interfaced to the accounting, those payroll liabilities and labor expenses are automatically posted to the general ledger, so that the accounting system is updated in real time.
Automation vs. Manual Entry
Without an interfaced payroll, the information will need to be posted into the accounting system manually, with journal entries. This may not be so difficult if the payroll data is simply saved to one expense account, because it can then be brought into the accounting system as a single transaction. (It is still a manual posting process.) However it becomes exponentially more complex with each entity tracked in the payroll system. For instance, if you are tracking labor expenses by department, each department creates an additional journal entry. Adding more tracking variables such as location, project, and profit center create even more entries. You can see how the manual entries really add up, with each labor tracking variable. Not only does this cause additional manual work, but manual data entry increases the possibility for errors.
🙂 Manual entry of journal entries can not only increase the margin for error. The other issue is that the more entries, the harder it is to audit those transactions, should the need arise. Having the data posted to the general ledger through an interface can really make auditing easier because there are far fewer transactions to sort through during an audit. If you have the option of interfacing your accounting software and payroll, you should consider doing it. The updated financial information, automated posting of data to the general ledger, and auditing capabilities can make the additional efforts and costs associated with the interface worth it