Payroll Closing: From Approved Timesheets to Accurate Paychecks

Payroll closing is the step where you lock the hours for a pay period, approve them, calculate pay and send the result to payroll. Done well, it takes a few hours and produces paychecks that match the hours worked. Done badly, it is where missed punches, overtime errors and leave mistakes turn into back wage claims.

This guide walks through a closing routine from cutoff to review, with a worked example showing how a shift differential changes overtime, and the controls that keep every period consistent. Pay timing and final pay rules vary by state, so check with counsel or your state labor department for the deadlines that apply to you.

Start with a clear cutoff and calendar

Every close needs a calendar. Decide the pay period end, the date employees must submit or confirm hours, the date managers must approve, the date payroll runs, and the pay date. Share it with everyone and repeat it each period.

Remember the difference between the pay period and the workweek. Overtime applies to hours over 40 in each fixed 168-hour workweek, even if you pay every two weeks or twice a month. If a pay period ends in the middle of a workweek, you may need to carry hours over so the overtime calculation stays correct. State law may also set how soon after the period ends you must pay, so build your calendar around that deadline.

Resolve exceptions before approval

Exceptions are anything that makes a record unreliable: open punches, missing meal entries, entries outside the schedule, overtime nobody approved, and manual edits. Clear them first, and document each fix. Our guide on missed punches and timesheet corrections describes a safe process.

Treat unapproved overtime carefully. You may counsel an employee who works hours without permission, but the time must be paid. Mark these cases in the record so you can manage them without delaying the paycheck. If you want to dig deeper, see unauthorized overtime.

Approval: who signs off and how

Approval should be a defined step, not an assumption. Each manager reviews the hours for their team and approves them, and an HR or payroll lead checks that nothing is outstanding. Employees should have the chance to confirm their own hours before the manager approves, since this catches errors while they are fresh.

Keep a record of who approved what and when. If you need to change an entry after approval, reopen the period for that entry only, make the correction with a reason and approve it again. Locking the period after approval prevents quiet edits and gives you a clean set of numbers.

Calculate regular pay, overtime and differentials

The calculation is where details matter. Overtime is 1.5 times the regular rate, and the regular rate includes nondiscretionary bonuses and shift differentials, not just the base hourly wage.

Here is an example. An employee earns $19.00 per hour and works 46 hours in the workweek. Ten of those hours were on a night shift with a $1.50 per hour differential. Straight-time pay is 46 x $19.00 = $874.00. The differential is 10 x $1.50 = $15.00, so total straight-time earnings are $874.00 + $15.00 = $889.00. The regular rate is $889.00 / 46 = $19.33 (rounded from 19.326).

Overtime hours are 46 - 40 = 6. Because the straight-time pay already covers all 46 hours, only the half-time premium is added: 0.5 x $19.33 x 6 = $57.98. Total pay for the week is $889.00 + $57.98 = $946.98. Using only $19.00 as the rate would have paid $57.00 for the premium, a $0.98 shortfall that repeats every week. For more cases, see how to calculate the regular rate and overtime.

Add leave, deductions and the overtime premium

After hours and overtime, add paid leave such as PTO, sick leave and holidays according to your policy and state law, then apply deductions and withholding in your payroll system. Check the totals against the previous period; a sudden change in total hours or overtime is worth a quick look.

Keep the FLSA-required overtime premium visible as its own figure. With the federal "no tax on overtime" deduction in effect for tax years 2025 to 2028, only the premium portion required by the FLSA qualifies, and employers report qualified overtime on the W-2 starting with tax year 2026. State-only daily overtime does not qualify. Our article on no tax on overtime and W-2 reporting covers the details.

Review before you release payment

Before approving payment, run a short checklist:

1. Every active employee has hours, leave or a documented reason for zero.

2. No open punches or unresolved exceptions remain.

3. Overtime totals match the hours over 40 in each workweek.

4. Rates, differentials and bonuses match the employee records.

5. Totals are within a reasonable range of the prior period.

Have someone other than the person who prepared payroll look at the summary. A second pair of eyes catches transposed digits and a missing employee, which are the most common slips.

Archive the period

When payment is made, save the approved timesheets, the payroll register and a note of any adjustments. Payroll records must be kept for 3 years and time cards for 2 years under the FLSA, and your state may require more. A closed, archived period also makes any later audit faster because you can produce one package per period.

Plan for off-cycle fixes. Even with a careful close, a late correction will occasionally appear after payroll has run. Decide in advance how it will be handled: pay the difference in a separate payment or on the next regular payroll, depending on your state's rules, and record the reason. Never let the issue wait until the employee complains twice. Tracking the number of post-close adjustments each period is a simple quality measure, and a falling number tells you the closing routine is working.

How SimpleWorkshift Helps With Payroll Closing

SimpleWorkshift gives you a payroll closing step built on the time entries your team already records. Managers see entries and exceptions in real time, so problems are resolved during the period instead of on payroll day. Automatic overtime calculations, including night shift differentials, apply your rules to each workweek, and time bank, PTO tracking and absence tracking keep leave in the same record.

Custom reports and dashboards summarize hours, overtime and leave by employee or department so you can review before releasing pay. Employees clock in and out from the iOS or Android app or the web with GPS captured on each entry. Try it with a 30-day free trial, no contracts, at simpleworkshift.com.