What is the Purpose of a Payroll?

Payroll Processing ensures that employees receive salaries on time with the right deductions. The HR department and the payroll staff have a major responsibility for paying employees according to local tax rates and organization guidelines.

Small business owners generally go for a  manual payroll routine. They engage in payroll outsourcing, in which they hire a payroll service provider who is responsible to deliver wage calculations.

However, this can also be done by an in-house human resources department with the right payroll software which is suitable for small and medium-sized businesses. A payroll company might not be familiar with your company policies. Hence a payroll software with outsourcing services might be what you as a company are looking for.

If you’re trying to figure out between in-housing and outsourcing payroll. Here is a blog to help you get started.

Establishing Payroll Policies:

Salary is a fundamental right of an employee, and therefore setting the right payroll policy is necessary and is the first stage of a payroll cycle. Individual payroll policies and payroll taxes may differ from a full-time employee to part-time & contract-based employees.

Wages and payroll taxes may also differ for hourly employee agreements, independent contractors, and freelancers.

Understanding Salary Components:

Salary components are the bifurcation of fixed and variable components. These are based on several tax forms, such as the W 4 form, which outlines your employees’ payments list. Other than that, numerous forms are based on the role of an employee.

Other payroll components are in the form of deductions and benefits. These include bonuses, employee benefits, voluntary deductions, wage garnishments, health insurance plans, retirement plans, life insurance, HRA, and more. In these, there might be employees who might be exempted for certain cases and nonexempt employees.

Gathering Inputs:

Gathering inputs for employee paychecks is time-consuming. This monthly process needs to be managed efficiently, keeping the size of a company in mind.

Inputs can be across numerous verticals, including loans, travel expenses, extra shift charges, paid leave, commission, relocation expenses, and miscellaneous expenses.

Validating Inputs

The data captured is then subject to validation to eliminate any possible errors at a later stage. This is a crucial step as you consider data of only current employees in your organization.

Setting up Payroll Processes

After these pre-tax deductions, we begin with the actual payroll program. Payroll processes should be monitored closely by experts in the department to avoid any possible duplication or errors.

Payment of Statutory Payments

The state and central government have mandatory tax payments that employers need to deduct from employee wages.