What is balancing?
After the end of every quarter, OnTheClock performs a process called “balancing”, in which the taxes that were calculated throughout the quarter (or imported on external payrolls) are adjusted for accuracy and alignment with agency rules.
For example, if a tax has a fixed rate, then balancing will ensure that the tax amounts withheld in the quarter equal the total taxable wages for the quarter multiplied by that rate. Or for a tax like Social Security, which has a cap on wages that can be considered “taxable” in a given year, balancing will adjust taxable wages for the tax to sure that it has not exceeded this limit.
This balancing process is essential to ensuring that OnTheClock is able to file for taxes, and prevents tax notices for the employer. And as part of this process, employers may receive a collection or refund for changes in tax amounts that this balancing process produced (i.e,. “variances”).
How does balancing work in OnTheClock?
Beginning in Q4 2025, in addition to the “regular” and “off cycle” payrolls that are created as companies are running payroll, you will see a special type of payroll called “balancing” payrolls.
Throughout the quarter, OnTheClock maintains a draft balancing payroll for every company with a payday set to the last day of the quarter. This balancing payroll gives you an early signal of any upcoming tax liability adjustments that may result in a variance collection or refund. It recalculates taxes across the quarter to ensure taxable wages and amounts align with agency rules for filing, and it updates weekly as payroll history changes.
This is a standard process in the payroll industry—taxes can fall out of balance for many reasons, such as a mid-quarter rate change or simple rounding drift over time.
Understanding the root cause of tax variances
There is not always a straightforward answer to “why” tax variances exist for a company. A few example causes of tax variances are:
- Mid-quarter rate changes — For example, if a company’s state unemployment rate changes mid-quarter, then payrolls that were calculated during the quarter before the rate change was entered in OnTheClock will produce a variance.
- Exemptions added or removed — If an exemption to a tax was added or removed mid-quarter, then payrolls that were already processed may produce a variance to retroactively add or remove the tax.
- Mistakes during company setup — A company’s historical payrolls may have been entered with incorrect subject wages or tax amounts.
- Rounding throughout the quarter — Simple rounding differences between calculating a tax payroll by payroll vs. in aggregate on the entire quarter may produce minor variances.
- Other agency-imposed requirements — For example, credit reduction states for FUTA are announced in November ever year, and will appear as tax variances for employers in the affected states in Q4.
- Additional variances — When OnTheClock is filing, there may be times where we realize an additional collection or refund is required, resulting in additional debits or credits to your Employers throughout the filing month.
The best way to begin investigating the root cause of tax variances for a company is to start with payroll summary and payroll journal, which can be accessed from the Company > Reports tab. Select the option to “Include taxable wages” in the report.
Once you have the reports, look for any instances where the calculated tax amount does not equal the taxable wages times the rate for the tax. Those are more than likely the source of the tax variance, and may help you identify one of the root causes above.
Using draft balancing payrolls proactively
- For large expected variances, communicate early. Proactively notify employers well in advance of Quarter End. A good example is the FUTA Credit Reduction at Q4 Quarter End.
- If the balancing preview looks wrong, escalate quickly. If you have identified the root cause of tax variances and believe that corrections are required, create a Support request with the “Corrections + Amendments” request category. Addressing it early increases the chances it can be resolved before filings.
Balancing payroll approval and variance transactions
Balancing payrolls are approved on the second business day of the filing month and variance collections or refunds are scheduled for three business days later.
After balancing payrolls are approved, the expected payment amount and agency refund amount become available in the Quarterly Variance Report.
Exceptions to this timeline
In some cases, balancing payroll approval may be delayed:
- Companies with data inaccuracies — If corrections are needed (from a company setup error or inaccurate historical payroll data), OnTheClock will process those corrections and then approve the balancing payroll once the data is accurate. The approved payroll will then appear in the report and generate a variance transaction on the adjusted timeline.
- Companies not in Good Standing — Companies in bad standing will not have approved balancing payrolls until they resolve their outstanding requirements. Once resolved, OnTheClock will approve the balancing payroll and schedule the associated variance transaction.
In some cases, a second balancing payroll may run due to a partner- or employer-initiated correction or agency feedback.
OnTheClock recommends reviewing the Quarterly Variance Report daily during the filing month to maximize your ability to set clear expectations with employers. The “Updated at” field on the Quarterly Variance Report can help you identify variances that have changed.
Reopening balancing payrolls
If an employer needs more time to fund a collection or review tax variance amounts, then partners can reopen the balancing payroll, which will cancel the scheduled transaction. This can be done in OnTheClock by opening the “…” menu on the payroll, and then clicking “Reopen payroll”.
Important: Reopening the balancing payroll shifts responsibility to the partner. If the payroll is not re-approved in a timely manner, it may result in late payments. We recommend resolving and re-approving the payroll within three business days to avoid issues with deadlines.