What's the difference between payroll and bookkeeping?

No business gets far without sound financial infrastructure. Up-to-date and accurate payroll, bookkeeping, and accounting practices help set the foundation of a successful business. So, it is important to understand the difference between payroll and bookkeeping and how, along with accounting, they contribute to your financial health.

Software has made parts of the process faster, but bookkeeping, payroll, and accounting still need people to check the work. Whether it’s an error in a pay run or a tax deposit that goes in late, any glitch can throw financial records off, so it’s important to have the right expertise.

Although many bookkeepers do payroll, by no means are all bookkeepers payroll experts. At Visory, payroll specialists run payroll, alongside the team that runs bookkeeping.

In this guide, we’ll go over the basics of payroll, bookkeeping, and accounting. We’ll outline the tasks each may do, and the role each plays in your business.

What does a payroll expert do?

Payroll is the process of verifying and distributing payments to employees at the agreed rate and in line with federal and state wage laws. The process might appear straightforward and easily automated; however, it’s an easily tangled process that can require skilled financial experts as well as human resources (HR) to get right.

Payroll tasks

The tasks that a payroll expert completes may vary slightly depending on if you’re outsourcing payroll or hiring in-house. It also depends on the details of your service agreement. However, these are a few of the common tasks and responsibilities.

• Make sure all payroll transactions get processed efficiently and at the correct times
• Calculate, collect, and record data to manage and track payroll information and balance sheets
• Compile summaries of earnings, deductions, taxes, benefits, leave, and nontaxable earnings for financial statements, audits, and more
• Resolve payroll discrepancies
• Follow regulatory payroll policies and procedural operations for compliance
• Withhold federal income tax and social security and Medicare taxes
• Withhold and pay state and local taxes, such as state income tax and unemployment insurance, where they apply
• Deposit federal employment taxes and file Form 941 each quarter
• File Form 940 for federal unemployment (FUTA) tax each year
• Prepare Forms W-2 for employees and file them with the Social Security Administration after each year ends
• Implement ad hoc operational and financial reporting as required

Payroll checklist

To keep payroll accurate, businesses need to collect and confirm employee details like those listed below.

• Have confirmed employee details
• Legal name and address
• Social Security number
• Federal withholding details, from their Form W-4
• Employment eligibility, confirmed on Form I-9
• Start (and termination date) of every employee
• Details of account they want used to receive wages
• Track pay details such as pay rate, overtime status, gross wage, deductions, etc.

What a bookkeeper does

Bookkeepers manage many of the everyday financial needs of a business, from tracking cash flow and reconciling your accounts to updating your books and creating standard financial reports.

Although bookkeepers are not the same as accountants or payroll experts, occasionally, a bookkeeper may perform some payroll or accounting tasks. It is important to note that anyone who prepares or helps prepare federal tax returns for compensation must have a valid preparer tax identification number (PTIN) from the IRS. If you’re considering hiring a bookkeeper, consider what types of tasks you need and their area of expertise.

Bookkeeper tasks

Here are a few common tasks bookkeepers may handle.

• Pay suppliers, vendors, subcontractors, etc.
• Produce, record, and track invoices for provided services or goods sent to customers
• Bank reconciliations
• Document customer receipts
• Prepare financial reports like balance sheets
• Manage accounts receivable and payable
• Track depreciation

What’s the difference between payroll and bookkeeping?

Although a bookkeeper may complete some payroll functions, the two roles are different. Now that we’ve covered each in detail, let’s look at how they differ.

In their most basic form, payroll and bookkeeping are different because they manage different functions within an organization.

• Payroll: The process for paying staff and managing their pay rates.
• Bookkeeping: The day-to-day management of the company’s finances.

The two meet at several points. Each pay run creates wage, tax withheld, and employer tax entries that the bookkeeper records and reconciles. The taxes withheld and deposited have to match the liabilities in the books and the totals reported on Form 941, and the year’s Forms W-2 have to agree with the four quarterly returns. The business owner or manager approves each pay run before staff are paid, so they stay responsible for what is paid.

Accounting is also sometimes used interchangeably with payroll and bookkeeping. It is key to understand these differences as well, especially if you are considering hiring an expert to help you with your business finances.

What an accountant does

Accountants are advisers who produce financial reports and offer financial advice. Many also prepare tax returns and make sure taxes get paid properly and on time. So that the business is stable, accountants evaluate operations and recommend best practices, spot issues, and suggest changes to help the organization run more effectively.

Accountant tasks

Here is a brief list of many tasks an accountant might be responsible for daily.

• Ensure the accuracy of the company’s accounting and tax records
• Make sure financial transactions comply with relevant laws and regulations
• Prepare, report, and maintain important financial reports
• Put together tax returns and see that taxes get paid properly and on time
• Offer counsel on revenue growth, cost reduction, and profit maximization
• Assess forecasting and risk analysis

Why you need payroll and bookkeeping experts

An error in your financial records can impact your entire operation and knock the business off its game. A skilled bookkeeper can help you strengthen your business acumen, whether that be choosing the right bookkeeping software or analyzing your financial data to identify areas of growth.

Visory runs bookkeeping, payroll, accounts payable, and accounts receivable for growing businesses. A dedicated team, working with Visory’s AI, Delphi, under that team’s oversight, keeps payroll and the books in step. Visory Insights and a Business Performance Partner then turn the numbers into decisions.

Small errors turn into large problems, so it pays to have each pay run checked before staff are paid, and each month’s books reconciled before you rely on the reports.

For a growing business, managing payroll and bookkeeping on your own can feel like a daunting task. If you’d like to talk through what your business needs, book a discovery call.