In payroll accounting, what is meant by a variance report in payroll and what does it typically show?

Introduction / Context:
Payroll is one of the largest expense areas for many organisations. Management needs tools to monitor changes in payroll costs and to investigate unusual movements. A variance report in payroll is one such tool. This question checks whether you understand what a payroll variance report is and what information it provides. It is an important concept for payroll analysts, HR professionals, and finance staff.

Given Data / Assumptions:

• The focus is on payroll reports, not general financial statements.
• We are dealing with the term variance report, which suggests comparison and difference analysis.
• Payroll data can be compared across periods or against budgeted values.
• Management is interested in changes by employee, department, or pay element.

Concept / Approach:
A payroll variance report is designed to show differences between actual payroll costs and reference values such as previous month payroll, same month in the prior year, or approved payroll budget. The report usually presents amounts and variances for key pay elements like basic salary, allowances, overtime, incentives, and employer contributions. By highlighting increases or decreases, it helps management identify issues such as incorrect entries, unexpected overtime, new hires, separations, or pay rate changes. It is a critical control and analytical report, not just a list of new employees or tax calculations.

Step-by-Step Solution:
Step 1: Focus on the keyword variance. In accounting, variance generally means the difference between actual and budget or between two periods.Step 2: Apply this idea to payroll. A payroll variance report should compare payroll amounts and show differences for meaningful periods or against planned figures.Step 3: Recognise that management would want payroll variances by employee, department, location, or pay element, not just a raw list.Step 4: Review the options. Option A explicitly states that the report compares current period figures with prior or budgeted figures and highlights differences by various categories.Step 5: Conclude that option A correctly captures the purpose and content of a payroll variance report.

Verification / Alternative check:
Consider what questions senior management asks about payroll. They often ask why payroll costs increased this month, which departments saw higher overtime, and whether the salary bill is in line with budget. A variance report is the report that answers such questions by showing differences and their magnitude. A simple list of new employees or a tax computation sheet does not provide this comparative information. This confirms that option A best describes a payroll variance report.

Why Other Options Are Wrong:
Option B describes a list of employees who joined during the year, which may be part of HR analytics but is not a variance report. Option C is a tax computation sheet, which focuses on tax calculation and not on variances between periods or budgets. Option D limits the report to gratuity calculation for retired employees, which is a very specific function and does not match the general purpose of variance analysis across the payroll.

Common Pitfalls:
Some candidates confuse variance reports with generic payroll summaries and think they are simply detailed payroll lists. Others mix up variance analysis with statutory reports such as tax or social security returns. To answer correctly, remember that variance means comparison and difference, and that a variance report in payroll is used to monitor and explain changes over time or against plans. It is a management tool rather than a statutory compliance document.

Final Answer:
A variance report in payroll is a report that compares current period payroll figures with prior periods or budgeted figures and highlights differences by employee, department, or pay element for management review.