In finance, reconciliation is the process of matching two records with each other to conclude that they both are the same. In HR, payroll reconciliation is an exercise where the payroll department of a small or large scale business checks the salary on paper and compares it with the salary paid to the employees. Usually, in a company, an individual is not entitled to get the entire salary that is mentioned to him/ her. The salary is always cut down into various other components like- basic salary, provident fund, insurance, tax, etc.
The financial statement of the company needs to reflect both the amount, the one paid to the employee i.e. basic salary or allowance if any, as well as the money deducted in lieu to pay in future or to the government, for example, provident fund or taxes. Such an act of matching the financial statement for salary paid along with other expenses like provident fund, taxes, etc. with the basic salary received by an employee is called reconciliation.
Payroll reconciliation is very important to keep accurate accounting records to measure the financial status of the company.