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Overview

Accounting for companies running payroll, including businesses of one, can be tricky. Tight’s native payroll integrations make this process easy, with zero user input required.
Tight supports Accrual Basis, Cash Basis, and Modified Cash Basis accounting methods. Many cash basis businesses choose to use Modified Cash Basis when enabling payroll for the first time.

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Use cases

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Integrating your users existing payroll system

Many of your users already run payroll through established providers. With Tight’s native integrations, they can connect their existing payroll accounts to your platform and immediately benefit from automatic accounting without switching providers or changing their payroll workflow. Your users connect their existing payroll providers via one of Tight’s native integrations (e.g., Gusto retail). Once connected, payroll runs are automatically synced to Tight as they occur, accounting transactions are created in real-time in the user’s General Ledger, and bank withdrawals are automatically reconciled when they clear. Your users continue running payroll exactly as they do today, and Tight handles all the accounting complexity in the background.

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Automatic payroll/withdrawal reconciliation

Regardless of which approach you choose, connecting existing payroll systems, embedding payroll into your platform, or feeding payroll data directly to the Tight API, the automatic reconciliation works the same way. Tight creates the proper accounting entries for each payroll run and automatically reconciles bank withdrawals when they clear, with zero user input required. That reconciliation process, when done manually, can be very complex, as a single payroll run typically includes at least three bank withdrawals, all of which need to be mapped to different accounts. With the Tight API, this reconciliation happens automatically, without user input.

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Monthly Payroll Run Example

Here’s a concrete example of what Tight automates:
  1. The owner of an S-Corp has two employees and a contractor. They run their monthly payroll:
    • Owner salary: $6,000
    • Two employees: $4,000 each ($8,000 total)
    • One contractor: $1,000
    • Company payroll taxes: $2,000 per W-2 worker ($6,000 total for owner + 2 employees)
    • Employee payroll tax withholding: $1,000 per W-2 worker ($3,000 total)
    • Health insurance: $400 per person ($1,200 total for owner + 2 employees)
    • Company 401k contributions: $200 per person ($600 total for owner + 2 employees)
    • Employee 401k contributions: $300 per person ($900 total for owner + 2 employees)
  2. The payroll provider processes four separate bank withdrawals:
    • $12,000 for Employee Net Pay ($15,000 gross wages minus $3,000 in tax withholdings)
    • $9,000 for Payroll Taxes ($6,000 company portion + $3,000 withheld from employees)
    • $1,200 to CareFirst for health insurance
    • $1,500 to Guideline for 401k ($600 company contributions + $900 employee contributions)
  3. The Tight API automatically matches these 4 bank withdrawals with the payroll run and performs the following accounting splits:
    • $12,000 net salary withdrawal → Split into $5,000 owner net pay, $6,000 staff net pay, and $1,000 contractor payments
    • $9,000 payroll tax withdrawal → Split into $6,000 for company payroll taxes (expense), $1,000 added back to owner gross wages, and $2,000 added back to staff gross wages (since these amounts were withheld from their paychecks)
    • $1,200 health insurance withdrawal → Split into $400 for owner benefits (expense) and $800 for employee benefits (expense)
    • $1,500 retirement withdrawal → Split into $600 for company 401k contributions (expense) and $900 for employee 401k contributions (treated as additional wages from the company’s accounting perspective)
  4. Furthermore, the Tight Embedded experience nests these transaction line items neatly under the payroll run, giving the business owner complete visibility into their payroll costs without manual reconciliation work.
Tight follows best practices with its default payroll accounting; however, you can customize your platform’s custom Chart of Accounts (CoA) to configure the above splits with however much (or little) granularity as your users desire to see in their Financial Statements.

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Embedding payroll into your platform

If you don’t already, you can offer payroll directly within your platform with Embedded Payroll. Tight integrates seamlessly with these providers. Your users can run payroll entirely within your product experience, and Tight automatically handles all the accounting behind the scenes. Tight supports three embedded payroll providers: Once you integrate with an embedded payroll provider and configure it with Tight, your users run payroll directly in your platform, and Tight receives payroll data in real-time, automatically creates accounting entries, and reconciles bank withdrawals when they clear. This approach gives you complete control over the payroll UX while Tight handles the complex accounting automatically, and your users get a seamless, unified experience all within your product.
If you haven’t embedded payroll yet, an expert from the Tight team can introduce you to embedded payroll providers and help you evaluate the best option for your platform.