Prior Period Adjustment

What Is Prior Period Adjustment (PPA)?

A prior period adjustment (PPA) is a correction to a reported time, pay, or classification on an employee’s previous payroll.

Though employees and employers should make an effort to accurately report and calculate payroll, sometimes things get overlooked. And these errors are often not caught until after timesheets have been submitted. 

To amend information in their previous payroll, you and your employee need to carry out a PPA. 

When Would You Need to Make Prior Period Adjustments?

PPAs are required when there is a timesheet error that impacts an employee’s pay and/or benefits. 

The Fair Labor Standards Act (FLSA) provides benefits and protections that pertain to specific employees and affects the way they are paid. Therefore, the right information needs to be recorded to ensure each worker has access to the wages and benefits they are entitled to. 

Here are a couple of situations that would necessitate a prior period adjustment: 

• The payroll administrator misclassified an employee. They should have categorized them as an exempt employee rather than a non-exempt employee. As a result, the employee was not paid the overtime they were supposed to receive. 

• An employee accidentally submitted the wrong time on one or more days of their timesheet. Maybe they forgot to log back in after their lunch break and was given a smaller paycheck than usual. 

How Do You Fix Prior Period Errors?

Payroll adjustments should be made as soon as possible to avoid state/federal penalties and fees. Though timesheet software and processes differ across organizations, PPAs are generally carried out as such: 

• Canceling the employee’s previous payroll 

• Accessing the employee’s previous pay period timesheet and making the necessary adjustments

• Making adjustments for the next payroll cycle to get things back in balance (This should happen if there’s been an error in the amount of pay.) 

How Can You Prevent the Need for Prior Period Adjustments?

You can prevent or minimize the number of PPAs by doing the following: 

• Send out a weekly reminder. Whether it’s through email or in person, kindly remind your employees to fill in and double-check their timesheet a few days before the timecard deadline.

• Take time to understand the laws/policies around payroll. The more you keep up with the evolving laws around payroll (they can vary across states), the more your payroll admin team can avoid errors. From understanding key terms (for example, exempt versus non-exempt) to knowing how laws pertain to specific employees, make sure your team has access to the right resources. 

• Set up the right payroll software. Invest in good payroll software and HRIS. These resources can eliminate time-consuming manual work and human error. 

• Run reports prior to payroll. With the right payroll software, you can run essential reports—like deductions summary, payroll register, and cash requirement reports—that can help your team catch mistakes prior to the payroll deadline. These reports can give you a summary of key details, so you can double-check amounts and information. 

Keep in mind, mistakes do happen. So be sure your payroll administration team has a PPA checklist ready to go in the event adjustments need to be made.