Payroll is important for all the employees who are working in the organization and also for the employers. The employers need to run the payroll and provide the wages to their employees after all the deductions and reimbursements. Payroll is done at the end of every month as employers provide salaries to their list of employees. It is paid according to your working hours and it may vary each month according to your working hours, attendance, and leaves. There is a process that is done by the organization to make the payroll done. There are ways to do it like hire agencies, buy correct software, or do it manually. In all this, you must take care of the statutory standards of payroll otherwise a penalty should be raised. Check and verify the software with various features like easy to use, integration, scalability, etc before buying it. To explore the Payroll process and its methods read it below or get in touch with 24/7 hrs customer helpdesk.
Table of Content
- About Payroll
- Form W-4 and Payroll
- What is the Payroll process?
- Things that make Payroll Management a challenge
- Methods to run Payroll for business
- Features must-have in your payroll software
- How you can connect with the team?
Definition of Payroll
“Payroll is the process of paying the amount to the employees of the company. “
“It is the number of wages paid by the company to their list of employees.”
“It is also known for calculating the taxes and the distributing wages.”
Payroll is used by all the organizations that have to pay taxes and wages to their employees. The functions involved in the business are as follows:-
- Payslip components are elaborated are HRA, Basic, LTA, and Variable pay
- Releases of employee salary
- Many other payroll inputs are collected
- Pay policy of the business is developed that includes the leave policy, benefits that are flexible, and many more things
- The dues like PF, TDS, and more are deposited with filing return and appropriate authorities
- The statutory and non-statutory deductions, calculation of the gross salary, and arriving at the net pay.
You can also say that the process of payroll also involves arriving for what is due to the employees is also known as net pay. That is done after adjusting the deductions and the taxes.
Form W-4 and Payroll
The W-4 form is provided to every employee who is new over there or is filling the form for the first time in the organization for accepting the laws of tax and more rules & regulations. Form W-4 is used for each employee that helps you in collecting the status of the filing tax and other information. This form helps employees to know their tax amount correctly against the employee’s paycheck.
What is Payroll Process?
The payroll process contains many things that an officer of the payroll has to do properly and accurately to complete it. These things are further divided into stages so, that they can be processed easily. This payroll process has 3 stages that are pre, main, and post payroll process.
There are some stages of payroll that help you in completing the payroll process. These stages are as follows:-
- Pre-Payroll Process
It is the first stage of the payroll process that includes various activities. These activities are as follows:-
- Define the policy of payroll- There are few policies of the organization like leave & benefits policy, pay policy, attendance policy, and more. All these policies must be explained properly and also approved by the management for standard processing of payroll. When you are going to pay the net amount is affected by these factors mentioned in this.
- Collecting the inputs- In this, you can interact with the various personnel and departments so, there is information related to the attendance data, mid-year salary revision data, and many more things.
In large companies, the task of collecting all the data is immense. But in small organizations, all the inputs have come from the fewer teams or consolidated source. If you use the payroll software that is smart then it has integrated features to collect all the inputs. Then this process becomes easier than ever.
- Input validation- When you received all the inputs required then do a validity check in concern of data that is devoted to the company’s policy, right formats, authorization, and others. In this, check and verify that no one from your employee’s list is missed for the salary payment and also, no old employees that are no longer in the company were included.
- Main Payroll Process
- Payroll Calculation- In this main process all the data is entered into the payroll system for processing the main payroll. As a result, you get the net pay amount after all the tax deductions and adjusting the important things.
After completing the process of payroll system, you have to do the reconciliation of values and also check it to avoid errors and for accuracy.
“The equation for calculating the Net Pay is as follows:-
Net Pay= Gross income-Gross deduction
The gross deduction includes statutory deductions, regular deductions, and any one-time deductions.
Gross income includes your income, benefit, or any one-time payment, and allowances.”
- Post Payroll Process
- Statutory Compliance- It contains ESI, EPF, and TDS as the main deductions while doing the payroll for an employee. This amount is submitted to the respective agencies of government. Its frequency may vary according to the type of dues you have. Most of the time dues are paid using the challans. After paying these dues the report or return is filed for it.
- Payroll Accounting- The financial transaction reports are saved by each organization. The main thing that must be recorded in the accounts is the salaries paid to the employees. Also, do check all the reimbursement data and the salary data is correctly added in the ERP or accounting system. All this is part of payroll management.
- Payout- The salary can be pay by cheque, cash, or bank transfer accordingly. Mainly, employees get a salary account from their company. After doing the payroll you have to check that the company account has the much amount to pay the salaries. The statement of salary with the employee id, amount of wages, bank account number, etc is sent to the concerned branch of the bank.
The payslips can be easily published if you go with the smart payroll software that has the option of the employee self-service portal. This portal is used to publish the payslips of employees and also employees can access it by logging in to their account.
- Reporting- When the payroll run is done for the concerned month then you will be asked for the reports by the high management and finance team. The payroll office is responsible to send the report by extracting all the important data in one place. This report includes the location wise employee cost, the department wise employee cost, and more.
Federal, State, and Local Payroll Taxes
- Federal Income Tax- It is the Withholding Tax type. It is the pay-as-you-go-tax that is retained by the employer from the employee’s paycheck when paid. The tax rate is published by IRS every year so, with that tax is done.
- Federal Unemployment Tax (FUTA)- It is the Employer type of tax that provides support to the employees who leave the company according to their choice.
- Federal Insurance Contribution Act (FICA) Taxes- It is the Shared Tax type and they revised rates on an annual basis. These are the Social security and Medicare taxes.
- State Income Tax- This tax type is withholding tax. Each state has their income tax except Texas, Alaska, Wyoming, Florida, South Dakota, Washington, and Nevada. New Hampshire and Tennessee have the tax dividends and the interest income only but they don’t have wages.
- State Unemployment Tax (SUTA)- It is one of the Employer Tax types. The unemployment tax is in each state that works with the federal tax. The state authorities decide their rates and assigned them to businesses.
- Local Taxes- It comes in the type of local tax as it is named. These taxes are the school board, municipality, local income, transit, and all other taxes.
Things that make Payroll Management a challenge
There are some challenges faced while processing Payroll Management. The reasons that make it challenging are as follows:-
- Depending on multiple sources of Payroll input
Collect all the data from the different resources is important before running the payroll system. These data sources are information related to the salary from the HR team, conveyance facility availed record, attendance register, and others. The payroll is managed on the excel sheets for many years and the excel sheet also has some issues like complexity, dependency, extraction, and many other limitations.
- Requirements to stay statutory complaint
If you won’t go with the statutory laws it causes you some penalties and fines. They also threaten you for your business existence. Now, there are many smart payroll management systems software in which the process is done automatically by taking care of all the laws.
Methods to run Payroll for business
There are many ways of doing the payroll for your business. Some of them are mentioned below:-
- Payroll Software- Using the software is the best option that is safe and does your work automatically also. For this, you have to check and verify the inputs that are coming from various sources and it won’t miss any of it. It automates the system of payroll and also provides the HR management, leave management, and employee self-service portal. Select the best software for payroll according to the size of your business.
- Payroll Management based on Excel (Manual)- The employers who have fewer employees must go with this method that is based on Excel. The sheet of excel has the standard template of payroll calculation and the formulas are also set to do so.
The limitations of using this method are:-
- Difficult to add or remove the employees in it
- Monitor all the changes in the statutory like PF, PT and more
- Mathematical errors can be found as it is done manually
- The omission of entries and also the chances of duplicate data
- Also, check the tax updates on a regular basis.
- Outsourcing Payroll- In this you are hiring an external source that is going to run the payroll for you. They provide all the information that is needed at the end of the month after running the payroll that is the information of employee salary according to their pay scale, reimbursements, leaves, attendance, and more. The payroll is the function in which the organization needs to share all the information with that other agency and it is not safe as well. So this is preferred very less for outsourcing the payroll.
Features must-have in your payroll software
The payroll software helps in saving your time and processes the payroll automatically and correctly within all the standards. There are the features mentioned below that you must check before you go with the software.
- The self-service module of Employee- The employee can log in and access they payslips. It is one of the best and main input providers. The employee provides you the information like the benefits taken, investment declaration for income tax savings, and more.
- Scalability- The software must have advanced benefits and features at an affordable price and also have less difficulty in operating it. When the size of the organization increases; it serves you the best all the time.
- Ease of operation- Must go with the software has straight workflows. They also update all the documentation and reports so that you can access the information in the software anytime whenever required.
- Integration of some systems
- Attendance- The data of the attendance stored in the system when the organizations used auto-tracking or bio-metric system. All the data is stored in the system that is linked to the payroll. This data used to calculate the overtime, attendance, leaves, and more. You must have the feature of attendance management in your system.
- Integration with accounting system- Your accounting or bookkeeping system records of every transaction that is done. It includes the information of Payroll like tax due, employee cost according to department, reimbursements, tax paid, and more. The API is used by some software of payroll to integrate with the financial software.
- Time Management- It helps you in time tracking that you spent on specific projects done or activities. The robust time management is used for tracking the important projects and also used for the billing of the clients.
- Leave Management- There is a certain number of leaves that are provided to the employees by the organization. These leaves are like casual, holiday, sick, annual, and many other leaves. The software must have the system for managing the leaves. The HR only needs to credit the leaves taken by an employee in their account and the employee can apply for the leave anytime.
How you can connect with the team?
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