Department: Finance & Accounting
Process Owner: Finance Director
Last Updated: January 2026
1. Overview and Purpose
Objective:
To define procedures for processing bi-weekly payroll, reviewing and approving employee time submissions, applying grant allocations, and ensuring correct setup of employees in the payroll system. This SOP ensures payroll is processed accurately, complies with grant requirements, and is properly recorded in the financial system.
2. Scope
This SOP applies to all payroll cycles, including:
- Employee time submission and manager approvals
- Allocation of payroll to programs using the Master Allocation File
- Review of sensitive time types that may not be eligible for certain funding sources
- Processing payroll, garnishments, new hires, terminations, rate changes
- Document retention and payroll entry preparation for month-end
3. Step-by-Step Process
3.1 Employee Time Entry
- Employees enter all hours worked into the payroll system using the employee-facing allocation file
- Hours must be entered according to where work occurred (programs/grants)
- Employees submit their timecards by the defined cutoff date
Reviewer/Back-up: Program Managers
3.2 Manager Review & Approval of Timecards
- Managers review employee hours for accuracy and completeness
- Managers must approve all timecards before payroll processing begins
Reviewer/Back-up: Department Managers
3.3 Master Allocation File Maintenance
The Master Allocation File defines expected payroll allocations for each employee across programs and grants.
File Owner: Finance Director (or Senior Accountant)
Update Requirements:
- Update when grants change, employees change roles, or during quarterly reviews
- File owner coordinates with program managers to validate allocation changes
- Controller approves all changes before implementation
- Save with version date and notify accounting team before next payroll cycle
Reviewer/Back-up: Controller
3.4 Accounting Review of Time Allocations
Accounting performs a compliance review before payroll is processed:
Validate Against Master Allocation File
- Open the Master Allocation File to confirm each employee's expected program allocation
- Compare employee time entries to expected allocation patterns
- Investigate variances that appear inconsistent with known operational activity
Note: Most payroll systems do not automatically flag allocation anomalies. Organizations with advanced reporting capabilities may be able to configure exception reports to highlight variances from the Master Allocation File.
Review for Non-Allowable Time Types
Many grants restrict which types of paid time can be charged as direct costs. Your organization should maintain a written Grant-Allowable Time Policy that defines:
- Which time types are never allowable for grant charging (e.g., administrative leave, jury duty)
- Which time types require special conditions or approvals
- How to handle incidental PTO or sick time for grant-funded employees
- Documentation requirements for exceptions
During payroll review, Accounting must verify that time charged to grants complies with this policy and the specific terms of each grant agreement.
Note to implementing organizations: If your organization does not yet have a Grant-Allowable Time Policy, this should be developed in consultation with your grant administrators and documented before implementing this SOP.
Review Hours and Inputs
- Validate correct hour totals
- Confirm overtime triggers, if applicable
- Confirm holiday, PTO, and special time categories are classified correctly
Reviewer/Back-up: Accounting Coordinator
3.5 Employee Setup and Maintenance in Payroll System
Accounting and HR ensure employee data is kept up to date:
- Add new hires into the payroll system using onboarding documents
- Process terminations promptly
- Enter rate changes, position changes, or allocation updates
- Maintain accurate garnishment settings (court orders, child support, etc.)
- Update employee funding allocations when program duties change
Reviewer/Back-up: Finance Director
3.6 Timesheet Corrections & Re-Approval Requirement
If an employee OR manager makes a correction after submission:
- The corrected timecard must be re-approved by the manager
- Accounting verifies the corrected approval is logged in the payroll system
- Corrections must be documented in payroll files (PDF or screenshot)
Reviewer/Back-up: Accounting Coordinator
3.7 Process Payroll
After all approvals and allocation checks, Accounting processes payroll. Validate:
- Gross payroll
- Employer taxes
- Benefit deductions
- Garnishments
- Run pre-processing audit reports
- Submit payroll
Reviewer/Back-up: Senior Accountant
3.8 Download Payroll Reports for Month-End and Grant Support
After payroll runs, download:
- Payroll Summary
- Payroll Register
- Deduction/Garnishment Report
- Allocation Reports (if applicable)
Save to the designated shared drive location in the appropriate monthly folder.
Reviewer/Back-up: Accounting Coordinator
3.9 Communicate Payroll Exceptions & Special Items
Examples include:
- Paid holiday for part-time staff
- PTO payout under revised policies
- Any one-time manual adjustments
- Any questionable grant allocations that require leadership review
Accounting confirms correct classification before close.
Reviewer/Back-up: Controller
4. Key Roles and Responsibilities
| Role | Responsibilities |
|---|---|
| Staff | Enter time accurately |
| Managers / Supervisors | Approve employee time |
| Accounting Coordinator | Allocation review, corrections tracking, payroll documentation |
| Senior Accountant | Payroll processing and review |
| Finance Director | Final approval, policy oversight |
| Controller | Oversees exceptions, ensures compliance |
5. Key Files and Systems
- Payroll System – Payroll system of record
- Master Allocation File (Excel) – Grant allocation expectations
- Manager Time Approvals – Approval logs
- Payroll Summary / Register Reports
- Shared Drive Payroll Folder
6. Exceptions & Special Cases
- Corrected timecards without updated approvals must be returned to the manager
- Non-allowable time types require additional scrutiny
- Funding billing anomalies must be elevated to Finance Director
- New hires/terminations cannot be processed without HR documentation
7. Risks and Controls Summary
| Process Step | Risk | Control |
|---|---|---|
| 3.1 Employee Time Entry | Incorrect or late time entry may result in inaccurate payroll or grant allocation errors | The payroll system requires employee submission before approval workflow begins |
| 3.2 Manager Review & Approval | Unapproved or improperly approved timesheets could result in unallowable payroll charges | The payroll system prevents finalization of payroll until all required approvals are complete |
| 3.3 Master Allocation File Maintenance | Outdated allocation file leads to incorrect payroll reviews and grant compliance violations | Quarterly review of file accuracy and formal approval process for changes |
| 3.4 Accounting Review of Time Allocations | Charging inappropriate hours to grants may create audit compliance issues | Allocation review is tied to Master Allocation File and sensitive-time policy review |
| 3.5 Employee Setup and Maintenance | Incorrect employee setup may cause payroll errors or misallocation of expenses | All employee changes require documented HR approval before system updates |
| 3.6 Timesheet Corrections | Payroll may be processed based on unapproved or incorrect data | Corrections cannot be processed until approval workflow is re - completed |
| 3.7 Process Payroll | Incorrect amounts processed may impact employee satisfaction and compliance | System reports and pre - processing audit are reviewed before submission |
| 3.8 Download Payroll Reports | Missing documentation reduces audit readiness | All payroll support is archived immediately after payroll run |
| 3.9 Communicate Payroll Exceptions | One - off exceptions may bypass standard allocations and cause misreported costs | Exceptions require Controller review before payroll is finalized |
