What Is Payroll Processing: All You Need To Know About It

What Is Payroll Processing: All You Need To Know About It

Generally, the term payroll has to do with the process by which employees are compensated by their employers for the job they have completed during a specific period, usually a month. The term can also be used to refer to a company’s list of its employees or the total cost of company employees’ compensation and sometimes the company’s department that process employees’ compensation.

Payroll Processing includes such tasks as gathering and reviewing the information necessary for calculating and producing a paycheck. These may include calculation of the wages due to each employee based on their contracted payment basis, calculation of bonuses or deductions according to the specific work done by the employee within the pay cycle, calculation and deduction of taxes.

Also social insurance and other pay-related obligations, deduction of pension contributions, deduction of voluntary amounts (e.g. union dues, saving schemes, etc.), management of holiday pay and other entitlements, management of sick-pay and other support payments, maintaining records of all pay-related amounts, generation of payment instructions etc.

Payroll processing requires performing many tasks to ensure accurately processed paychecks and payroll tax and benefits compliance.

So what is payroll processing? Is there more I need to know about it? There are a few more pertinent pieces of information to learn.

Terms Associated With Payroll Processing

There are so many terms associated with payroll processing but the most common terms, which every payroll administrator must know includes:

Employee is a person who has agreed by contract to perform specified services for another called the employer in exchange for compensation, conventionally monetary.

Compensation has to do with everything an employer gives to an employee in exchange for their services; such as salary, bonuses, benefits, and other packages.

Commission is a reward or compensation based on employee performances. You can pay employees a commission based on sales or by how many tasks an employee completes. A commission can be a percentage of a sale or a fixed amount per sale.

Deduction is the amount an employer withholds from employees’ compensation as requires by laws such as taxes deduction or voluntarily deduction on wages for health insurance, retirement plans, life insurance, etc.

Garnishment is a court-ordered procedure that requires an employer to withhold wages from an employee. The withheld wages may be used to pay a debt, such as unpaid taxes, defaulted loans, or child support etc.

Gross wages are an employee’s total wages before subtracting any deductions. The amount an employee takes home is less than his or her gross wages.

Net wages– Net wages equal the amount of money an employee takes home. Net wages (net pay) are an employee’s total wages after deductions.

Overtime –this is when an employee works above the regular time schedule. The overtime rate is normally one-and-a-half times the regular rate of pay.

Pay cycle or period– The pay cycle is the length of time over which employee compensations are prepared for payment. Pay cycle may be monthly, semi-monthly, weekly or bi-weekly.

Automation of Payroll Processing

Manual processing of payroll can be very cumbersome, time consuming and error prone, as you may need to work with data manually using paper or software like Microsoft Excel. Automating your payroll processing however helps you to collect data and process them electronically through a computerized system.

A payroll system is software that organizes all the tasks of employee payment and the filing of employee taxes. It performs such tasks as keeping track of hours, calculating wages, withholding taxes and deductions, printing and delivering checks and paying employment taxes to the government. Payroll processing automation is one way of reducing the time and energy you may need to spend on preparing a paycheck, which reduces your administrative burden and the risk of payroll errors with costly financial penalties. There are different types of payroll software as discussed below.

Types of Payroll Software

Some large organisations hire professionals to develop customised payroll software that suit their needs while others buy from a pool of available, off-the-shelf payroll software packages such as:

  • Oracle Payroll (http://www.oracle.com/us/products/applications/ebusiness/human-capital-management/053360.html) – a rules-based payroll management system that can assist in controlling the workforce costs; ensure the entire workforce is being paid on time and according to your compensation rules. Fully integrated with Oracle Financials, Oracle Payroll is based on a global HRMS engine with country-specific localization extensions to better manage your global HR operations.
  • Sage Payroll (http://www.sage.co.uk/software-and-services/payroll) – is recognised by HMRC and complies with all of the latest payroll legislation, including RTI and Automatic Enrolment. It is a flexible solution designed to meet the payroll needs of any organisation and has the capacity to automatically calculate tax, NI and statutory deductions.
  • ADP Workforce Now (https://workforcenow.adp.com/) – is a human capital management solution for companies with over 50 employees. Its core capabilities include human resources management, payroll, benefits, talent management, compliance, time and labour management and analytics and benchmarking.

Advantages of automated payroll processing

  • Saves cost: Once payroll functions such as calculating salaries, working out leave allowances and tax payments etc have been automated, you do not need too many payroll clerks anymore as a single individual can manage the software, saving the organisation money.
  • Saves time: One of the most common features of payroll software is its ability to calculate employees’ compensation in a fraction of the time that it will take to work out manually. Payroll software speeds up the process of salary calculation and does not require much human intervention.
  • Ease report generation: Payroll systems can provide a wealth of reports using basic payroll data. You can easily generate reports with fringe benefits, expenses and definitions specific to your organisation. These may include a full history of current and past pay slips and comprehensive employee details, which is accessed easily from the payroll system.
  • Eliminates errors: It is possible for someone to lose concentration when dealing with large data and repetitive tasks manually, hence, human error becomes inevitable. Payroll systems help to eliminate these human errors to a large extent and ensure that your payments are worked out accurately.