What is Prior Period Adjustment (PPA)?

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

Although employees and employers should strive to accurately report and calculate payroll, sometimes things get overlooked. And these mistakes are often only caught after the timesheet has been submitted.

To modify information on your previous payroll, you or your employee will need to do a PPA.

When would you need to make prior period adjustments?

A PPA is required when there is an error on a timesheet that impacts the employee’s wages and/or benefits.

The Fair  Labor Standards Act (FLSA)  provides benefits and protections pertaining to specific employees and affects how they are paid. Therefore, correct information must be recorded to ensure that each employee receives the pay and benefits they are entitled to.

Here are some situations in which prior period adjustments would be necessary:

• The payroll administrator misclassified an employee. They should have classified him as a non-exempt employee instead of an exempt employee. As a result, the employee was not paid the overtime he should have received.
• An employee accidentally entered the wrong time on one or more days of their timesheet. They may have forgotten to log back in after their lunch break and been paid less than usual.

How do you correct prior period errors?

Payroll adjustments should be made as soon as possible to avoid state/federal penalties and fees. Although timesheet software and processes vary across organizations, PPAs are typically performed as follows:

• Cancellation of previous payroll of the employee
• Accessing the employee's previous  pay period  schedule and making necessary adjustments
• Making adjustments for the next pay cycle so things rebalance (this should be done if there is an error in the pay amount.)

How can you prevent the need for prior period adjustments?

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

• Send weekly reminders.  Whether via email or in person, kindly remind your employees to fill out and double-check their timesheets a few days before the timecard deadline.
• Take the time to understand the laws/policies surrounding payroll.  The more you stay up to date with the changing laws surrounding payroll (they can vary from state to state), the more your payroll admin team can avoid mistakes. From understanding key terms (for example,  exempt vs. non-exempt  ) to knowing how the laws relate 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  an HRIS . These resources can eliminate time-consuming manual work and human error.
• Run reports before payroll.  With the right payroll software, you can run essential reports – such as deduction summaries, payroll registers and cash requirements reports – that can help your team catch mistakes before 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 happen  . So make sure your payroll administration team has a PPA checklist ready to use when adjustments need to be made.