What is a Payroll and Payroll Processing?

What do you mean by payroll?

Payroll can be defined simply as the process of paying an organization's employees. It entails gathering the list of employees to be paid, keeping track of the hours worked, calculating the employee's pay, delivering the money on time, and recording the payroll expense.

What is payroll process?

Payroll processing is the administration of employee compensation. It encompasses the entire process, from entering an employee into your payroll software through distributing their paychecks.

If you are a small business owner, it is likely that you handle payroll. When your workforce grows and payroll becomes more time-consuming, you may delegate this responsibility to an accountant or HR manager.

Typically, business owners acquire payroll accounting software to facilitate organisation and maintain payroll compliance with state and federal regulations. When processing payroll, there are numerous taxes to consider, therefore it is advantageous to have professional support.

Let's examine payroll's microstructure.

1. Track time

To process payroll, you must monitor your employees' hours worked. This consists of:

Regular hours worked

Time off (e.g., paid time off)

Overtime hours

Monitoring employee hours ensures that you pay staff the correct amount. Obtain timesheets from employees that indicate the number of hours worked and any time off throughout the pay period.

2. Calculate employees’ gross wages

You may hire salaried workers, hourly workers, or both. Once you know the number of hours worked, you can calculate their gross wages.

To calculate your salaried employees’ gross wages, divide the number of pay periods in the year by their annual salary.

To calculate your hourly employees’ gross wages, multiply their rate of pay by the number of hours worked in the pay period.

Keep in mind that employees may receive additional income from sources like tips, commissions, or bonuses that you must factor into payrolls.

3. Subtract taxes and other deductions

Taking taxes and other deductions out of an employee's gross pay is one of the most important (and confusing) parts of payroll.

Deductions before taxes: First, find out if a worker has deductions before taxes. If they do, take them out of the employee's gross pay before figuring out any taxes that need to be paid.

Taxes: Next, figure out how much tax will be taken out of the employee's pay. You have to take the following taxes out of a worker's pay:

Federal income tax

Social Security tax

Medicare tax

State and local income taxes (if applicable)

State-specific taxes

Don't forget that you have to pay taxes on your employees' pay as well. Social Security, Medicare, federal unemployment, and state unemployment taxes are all types of employer taxes.

4. Pay employees

After taxes and other deductions are taken out of the worker's gross pay, voila! You get the employee's net pay, or what they get to keep.

Check your information and calculations to make sure they are right before you pay your employees. Once payroll has been approved, it's time to pay people.

You might pay employees via:

Direct deposit

Paychecks

Mobile wallet

Pay cards

Cash

When you pay your employees, you might also give them pay stubs on paper or online. So, employees can see what they are being paid.

5. Report and update payroll records

Once the checks have been sent out, you should update your payroll records. These records must show that you took out federal income taxes, Social Security taxes, and Medicare taxes from your employees' paychecks. You also have to show how much you've paid in taxes.

There are a lot of other reasons why payroll records are important. For example, the Age Discrimination in Employment Act (ADEA) says that all payroll records must be kept for three years by employers. This information must include any written seniority or merit systems, as well as any retirement plans or insurance plans for employees.

How long does it take to process payroll?

Depending on how many people you have and what tools you use, processing payroll could take several hours. The process will take longer if it is done by hand.

Payroll and time tracking tools that are automated can cut down on this time by a lot. One reason is that most payroll processing solutions calculate payroll taxes for you, which could take hours to do by hand.

What is Payroll Software?

Payroll software is an on-premises or cloud-based solution that manages, maintains, and automates payments to employees. Robust, integrated, and properly configured payroll software can help organizations of all sizes maintain compliance with tax laws and other financial regulations, and reduce costs.

Payroll systems need to be reliable, easy to set up, and flexible enough to automatically pay all kinds of workers. Payroll systems will make it easier for employees to keep track of complicated rules, payroll flows, and checklists while also following tax laws and other financial rules. There are a lot of good payroll programmes out there, like Online Check Writer, Gusto, etc.