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Prior Period Adjustment

What is Prior Period Adjustment (PPA)?

A prior period adjustment (PPA) is a revision to an employee's previous payroll (time, salary, or classification). Although workers and employers make every effort to report and measure payroll correctly, mistakes take place. And, in many cases, these mistakes are not found until after timesheets have been submitted. Then after the PPA role starts, it's played by the employee and employer together to rectify the wrong done.

When Prior Period Adjustments are needed?

Whenever there are material errors in the timesheet of employees’ pay and/or benefit(s), PPA is required.

As per FLSA – Fair Labor Standards Act – specified workers are provided with the benefits and as well as the safeguards which affect the way the employees are getting paid. There are several situations where PPA becomes inevitable for you. Those scenarios are mentioned being here, as appended below: 

When an employee is erroneous, though inadvertently, placed in payroll as an employee who is exempt and that was a non-exempt employee who could get paid against overtime for the additional hour's input, this situation requires a Prior Period Adjustment to take over

Wrong overtime or regular hours input shared by the worker(s) due to any reason, this does not mean it happens deliberately but on the other hand, the employee might have mistakenly made that inaccuracy, but that needs rectification via prior period adjustment

What can be the potential reasons behind PPAs?

Following may be the potential reasons behind prior period adjustments:

How prior period adjustment errors might be fixed?  

Following are the methods by way of which prior period adjustment errors may be made clear / rectified:

How can you prevent the prior period adjustments?  

You can, however, prevent the prior period adjustments by way of the following:

Reminders on week basis

Just before time-card deadlines approach nearer; your workers must be reminded to fill the timesheets, for a double-check, right before the evaluation of the payroll for PPAs, if any

Law Interpretation

Payroll Software 

Reporting timely

Summarizing Prior Period Adjustment

Remember that you just need to keep strong checks in terms of the mistakes made, which do happen due to any reason, in payroll encompassing employees’ salaries and benefits; and hence improve the situation by improving the calculations in due course of time to avoid non judicious practice, mal reputation and/or litigation penalties, etc.

Apart from a deliberate mistake or fraudulent practice, prior period adjustments/restatements tell accounting systems that compassion, as well as comprehension, is possible, even in the calculation(s) of figures.