Payroll Meaning, Methods, and Steps in Mastering Efficient Payroll Management

Understand how payroll works by learning the payroll meaning, methods, and steps. Execute efficient payroll management to avoid legal consequences and maintain employee trust.

As long as a company has employees, payroll will always be important. Because a company is nothing without its employees, and ensuring that employees are being paid fairly and timely can be challenging.

That is why understanding the basics of payroll processing is a must for every business owner. Without proper payroll processing, you risk facing legal consequences and damaging your company’s reputation. Understanding payroll procedures can help you ensure that your employees are paid accurately and on time, which promotes a positive work environment and maintains employee trust. Read on to learn more.

What Is Payroll

Payroll is the process of paying your employees. However, it isn’t just simply calculating their wages. Payroll processing involves gathering your employees’ information, calculating incentives and deductions, and ensuring the company’s compliance with tax regulations.

Some businesses choose to calculate their payroll manually. Usually using spreadsheets and hand-setting the mathematical formula. Other companies with more employees prefer to outsource or automate their payroll.

Whichever approach you use, make sure that it is seamless and not making payroll processing more difficult. 

The payroll cycle varies between companies. According to factoHR, the five payroll cycles that most companies use are daily, weekly, bi-weekly, semi-monthly, and monthly. The difference between these cycles is the time interval between salaries. For instance, in a weekly cycle, employers pay their employees each week.

How to Do Payroll

Knowing the steps is crucial to processing payroll without complications. As outlined by Razorpay, payroll can be broken down into three steps: pre-payroll, actual payroll, and post payroll.

Pre-Payroll Activities

Pre-payroll step is the time to prepare a list of employees to be paid and onboard new hires. At this point, you should have defined your payroll policies and gotten management approval. These policies include pay policy, attendance and leave policy, employee benefit policy, and so on.

Next, obtain employees’ data to input, such as their ID, address, and bank account details. These inputs are important information in payroll processing. Make sure that this information is accurate to prevent payroll issues in the future.

Actual Payroll Activities

Once you have gathered the necessary employee information, you can begin processing payroll. This involves calculating and disbursing salaries, deducting taxes and other withholdings, and generating pay stubs or direct deposit statements. 

Additionally, it is crucial to maintain accurate records of all payroll transactions for auditing purposes and to ensure compliance with legal requirements. Using automated payroll software will prevent calculation errors in this step.

Post-Payroll Activities

After processing payroll, it is important to review and verify the accuracy of the calculations and ensure that all employees have been paid correctly. This includes double-checking any adjustments or overtime hours that may have been added.

Additionally, it is necessary to generate and distribute payroll reports providing detailed breakdown of payroll expenses to the relevant departments or individuals, such as accounting or human resources.

At the same time, you should pay your business’ taxes accurately and on time to avoid penalties. Records of the papers should also be kept for tax and compliance purposes.

Payroll Processing Methods

There are several methods for managing payroll in companies. Each of them has its own appeal. So when you are about to select a payroll method, think about your company's circumstances, financials, and other relevant aspects. 

Manual Processing

The simplest and cheapest payroll method is manual payroll. It’s usually a paper-based payroll. In most cases, the business owner manages manual payroll on their own. The tasks include but are not limited to calculating salaries and taxes, submitting direct deposits, and printing the pay slips.

 When dealing with manual payroll, there is a higher chance of making mistakes due to the manual input of data. Even the smallest miscalculation can cause the calculations to be off, which can lead to errors in payments. Additionally, having to manually input all the information can be time consuming and tedious, increasing the chance of mistakes.

Payroll Software

Next method is payroll software. With payroll software, you only need to input some information into the software, and the payroll will be automatically processed. This is obviously more cost-efficient and time-efficient than manual payroll. Some things that you 

need to keep up with is to update the software regularly whenever there’s a new version. 

Outsourced Payroll Service

Using a third party to handle your payroll or payroll outsourcing is best if you don’t mind spending quite a sum of money to handle your payroll. It’s also the most effective method for companies with a lot of employees. If you hire payroll outsourcing, the team will fully do the payroll work for you. The downside of outsourcing payroll is the lack of control, since everything is handled by outsiders.

Conclusion

Payroll is not only about wages; it’s also about adhering to the law and regulation. If payroll is managed poorly, it’s possible to lose essential members of your team. You could even have statutory difficulties. These two can affect your business directly. That’s why you should prioritize payroll in your company.



Read More: How to Avoid The Most Common Payroll Errors