Payroll processing

As an employer, you’re responsible for calculating and withholding money for federal, state and local taxes from every employee’s paycheck. The amount you withhold is determined by the Forms W-4 submitted by your employees and current tax rates. In addition, the United States government requires that you pay federal unemployment tax (FUTA) and match what your employees pay in Social Security and Medicare taxes.

What is Payroll Processing & It’s 3 Stages

What is payroll processing?

Processing payroll means compensating employees for their work. It involves calculating total wage earnings, withholding deductions, filing payroll taxes and delivering payment. These steps can be accomplished manually, but an automated process is usually more accurate and efficient and may help you comply with various payroll regulations.

If you’re a small business with only a few employees and choose to process payroll manually, you will need to keep precise records of hours worked, wages paid and worker classifications, among other details. You must also ensure your calculations are correct and remember to file all the necessary taxes and paperwork with government authorities on time. As you add more employees, the more challenging payroll becomes and any mistakes you make can result in costly tax penalties.

Payroll’s impact on cash flow

Even if you’re not paying someone else to do payroll for you, it’s still considered a business expense. This is because your employees’ wages and your share of payroll taxes cut into your profit margin. And if business slows down, you may be faced with the difficult decision of delaying payments or diverting money from other resources.

One way to limit payroll’s impact on your cash flow is to pay your people using direct deposit or digital pay options instead of paper checks. Because you don’t know when someone will cash a paycheck, it becomes more difficult to ensure you always have sufficient funds in your bank account. With direct deposit, you only need to cover the cost of payroll on certain days of the month, allowing you to better manage your finances. Plus, going digital cuts the expense of printing paper.

5 Tools to Improve Payroll Processing

Gusto

Gusto payroll processing solution homepage.

Gusto helps businesses with onboarding, pay, and benefits. It lets you easily calculate and file taxes and helps with compliance, time tracking, PTO, employee benefits, and more. Plus, it gives the staff easy access to pay stubs, W-2s, and everything else your employee would need online.

You get a beautifully designed interface, along with plenty of features to make payroll as simple and straightforward as it can be. Thanks to its easy software setup, you can be ready to run payroll in a few minutes flat.

OnPay

OnPay payroll processing solution homepage.

When you have tipped employees, you’re responsible for withdrawing and paying income, Social Security, and Medicare taxes on all of your employees’ tips. While this would’ve made tax compliance harder, you won’t feel much of a difference if you use OnPay.

Because of its automatic tax calculation functionality, the software can automatically deduct taxes from every paycheck after your employee enters their tips. It can also pay and file your taxes quarterly with the right government agencies to further reduce any burden.

Paychex

Paychex payroll processing software solution homepage.

It has a modular format that makes it easy to scale between small and larger-sized businesses. You can process complex payroll on different schedules in just a few clicks. Depending on the plan you choose, employees can receive payment via direct deposit, paper checks, or prepaid debit cards.

Zenefits

Zenefits payroll processing software homepage.

This payroll software can simplify administration features with its self-service benefits portal. Here, employees can update their benefits coverage and personal information by themselves, making the lives of the employer and the employee easier.

SurePayroll

SurePayroll payroll processing software homepage.

SurePayroll is a comprehensive solution that is user-friendly and fast processing when it comes to handling payroll functions. It is an online payroll system that comes equipped with all the necessary features for efficient payroll processing.

Although designed for small business organizations, even medium business owners can take advantage of the software. It offers several functions, such as wage calculation, record keeping, regulation compliance, tax calculation, and so on. What’s more, SurePayroll has a mobile app that can be downloaded on iOS and Android devices for payroll processing on the go.

5 Tricks for Payroll Processing

Go Paperless

Paperless payroll expedites your payroll operations. It cuts costs by ensuring top-notch data security and minimizing mistakes. Eliminate the need for cumbersome time-tracking methods like cards and sheets, physical paychecks, and paper pay stubs.

Use Clean Data

Employment misclassifications are common during onboarding. Not only do mistakes impact your employee’s health insurance and retirement benefits, but also affects the total funds withhold from their paychecks.

Know Your Tax Filing Dates

You should create reminders for yourself to file taxes throughout the year. The IRS already has a list of important small business and self-employed tax deadlines and forms, which can make things very convenient.

Maintain Accurate Records for Payroll

Accurate recordkeeping will protect your business in the event of a tax audit, FLSA, or other labor lawsuits. This is why keeping detailed records of all your payroll processes and employee paychecks is crucial.

As per the IRS, businesses have to maintain employee tax records for at least four years. The FLSA recommends 14 basic records employers must keep on every non-exempt employee for three years. This include:

Use Technology Whenever Possible

Luckily, there are several software solutions—some we’ve already mentioned above—that use automation, smart data, and connectivity to make the whole process time-saving and effective. You’ll get reports with minimal errors faster and be able to ensure compliance easily.

Challenges in the Payroll system and its One Step Solution:

  • There are several rules and procedures to follow, such as labour laws, federal rules, and legal compliance. Implementing these guidelines is not optional; it is required. However, non-compliance alone is not often a decision; many individuals simply do not grasp intricate rules. As a result, there are concerns with compliance and large fines.
  • If we merely analyze the example of conformity, we can see that mistakes might occur owing to human factors. Errors often occur when the sole person is responsible for the payment of 30 people. These are common errors that occur during hand computations. Charges and fines are occasionally imposed as a result of these mistakes.
  • Because cost accounting is so complicated, it is usual for Hrm to postpone compensation. Time is required for manual methods, regulation, taxation, and anything else. Determining each employee’s paycheck manually can be exhausting, resulting in delays. Whenever these delays occur, employees become irritated, and your attrition rate rises.

Cost accounting for your SMEs isn’t a straightforward activity that can be performed in-house by a single individual. Payroll processing presents a number of problems that have an influence on your efficiency and adherence framework. As a consequence, noncompliance sanctions have grown commonplace. In the preceding post, we looked at solutions for payroll processing problems. These difficulties are simply overcome by using one payroll processing provider.

What does Payroll Processing encompass?

A step-by-step explanation of Payroll Processing in India

STAGE 1: Pre-Payroll Activities

Defining payroll policy

This is the first stage wherein you establish policies to bank on during the payroll process. To turn these policies into standards, they need to be approved by the management. Examples of such policies are – pay policy, attendance policy, leave and benefits policy, and more.

Gathering inputs

DATA SOURCE DATA EXAMPLE
Employees Income tax declaration, facilities availed, and more.
HR team Salary structure, eligibility for benefits, etc.
Finance team Deduction for recoveries. etc.
Leave and attendance systems Data from attendance systems, current work shift, etc.
General service providers Transport service provider, canteen vendor, and more.

All this data collection can seem overwhelming at first. You must, therefore, incorporate payroll software which comprises features such as leave and attendance management, ESS (Employee Self Service portal) and more to make it hassle-free.

Input validation

Stage 2: Actual payroll process

Payroll calculation

Now that you have the verified data, its time to feed it into the payroll system. The result you get will be the net pay after the adjustment of necessary taxes and deductions. In this step, you recheck the process again to nullify chances of errors.

A payroll system is a software to automate the payroll process. These systems can be integrated with leave and attendance tracking systems and employee self-service portal and are used to keep track of employee’s working hours, calculate salaries, calculate taxes and deductions, print payslip, etc.

Stage 3: Post-payroll process

Statutory compliance

During the payroll processing, the payroll administrator needs to religiously adhere to the statutory compliances. Various statutory deductions – EPF, TDS, ESI – are deducted during payroll processing. These deductions are then paid to the respective authorities/government bodies.

Payroll accounting

Every organisation needs to maintain an accurate book of accounts. And the salary paid is one of its significant entries. Therefore, as a step of the payroll process, all salary data must be fed into the accounting or ERP system.

Payout

After all these steps, you can finally pay salaries via cash, cheque, or bank transfers. It is preferable to have salary accounts of employees for hassle-free transfers. For payment to salary accounts, you need to send salary bank account statements with particulars such as employee ID, account number, salary amount, etc., to the branch.

Reporting

The last step is to prepare accurate reports containing information such as department or location- wise employee cost. These reports are then sent to the finance department or the management team for further analysis.

The frequency with which employers pay their employees can have a direct impact on the morale of the employees and, as a result, the success of the business. In general, employees are happiest when they are paid frequently, such as weekly. Retail companies, construction companies, and skilled labour businesses typically pay their employees weekly because this practice fosters loyalty and productivity among employees.

The only downside of paying weekly is that it costs more than paying monthly or bi-weekly. Government agencies and schools typically pay their employees once a month to save money and keep with their financial budgets. The only downside to monthly payroll processing is that it takes so long for employees to be paid.

Payment via direct deposit is an oft-used payment method. It is used by a majority of workers and is considered to be the most popular payment method. Business owners find this payment method convenient because it allows them to pay employees without having to hand them a physical check.

Resources:

https://www.adp.com/resources/articles-and-insights/articles/p/payroll-processing.aspx
https://www.quicksprout.com/payroll-processing/
https://www.betterplace.co.in/blog/3-stages-of-payroll-processing/
Payroll processing

All statutory deductions like EPF, TDS, ESI are deducted at the time of processing payroll. The company then remits the amount to the respective government agencies. The frequency can vary depending on the type of the dues. In most cases, payment of dues is made via challans. After all dues are paid return/report are filed. E.g., for filing PF return, ECR is generated and filed.

Different components of payroll

What Is Payroll?

Payroll is the compensation a business must pay to its employees for a set period or on a given date. It is usually managed by the accounting or human resources department of a company. Small-business payrolls may be handled directly by the owner or an associate.

Increasingly, payroll is outsourced to specialized firms that handle paycheck processing, employee benefits, insurance, and accounting tasks, such as tax withholding. Many payroll fintech firms, such as Atomic, Bitwage, Finch, Pinwheel, and Wagestream, are leveraging technology to simplify payroll processes. These solutions pay employees with greater convenience and speed and provide digital payroll-related documents with innovative technology-enabled services required by the gig and outsourcing economy.

Payroll can also refer to the list of a company’s employees and the amount of compensation due to each of them. Payroll is a major expense for most businesses and is almost always deductible, meaning the expense can be deducted from gross income lowering the company’s taxable income. Payroll can differ from one pay period to another because of overtime, sick pay, and other variables.

Key Takeaways

Understanding Payroll

Payroll is the process of paying a company’s employees, which includes tracking hours worked, calculating employees’ pay, and distributing payments via direct deposit to employee bank accounts or by check. However, companies must also perform accounting functions to record payroll, taxes withheld, bonuses, overtime pay, sick time, and vacation pay. Companies must put aside and record the amount to be paid to the government for Medicare, Social Security, and unemployment taxes.

Many medium- and large-size companies outsource payroll services to streamline the process. Employers track the number of hours each employee works and relay this information to the payroll service. On payday, the payroll service calculates the gross amount the employee is owed based on the number of hours or weeks worked during the pay period and the pay rate. The service deducts taxes and other withholdings from earnings and then pays the employees.

Pre-Payroll Activities

Defining Payroll Policy

The net amount to be paid is affected by multiple factors. The company’s various policies such as pay policy, leave and benefits policy, attendance policy, etc. come into play at that time. As a first step, such policies need to be well defined and get approved by the management to ensure standard payroll processing.

Gathering Inputs

Payroll input sources

In smaller organizations, these inputs are received from a consolidated source or fewer teams. However, in a larger organization, the task of gathering data may look overwhelming. If you are using a smart payroll system having integrated features like leave and attendance management, employee self-service portal, etc. inputs collection process does not remain a problem.

Input Validation

Once inputs are received, you need to check for validity of the data concerning adherence to company policy, authorization/approval matrix, right formats, etc. You also need to ensure that no active employee is missed out and that no inactive employee records are included for salary payment. Read top 6 payroll validations to ensure accurate payroll.

The Characteristics of Perfect E-Payroll System

There are many characteristics of the E-payroll system that differs from one provider to another. Thus, it is essential to outline the significant features that stick to your priority and are best suited to your organization.

Statutory Compliant

Payroll Management that is highly compliant with rules and regulations must be your priority. Specific platform available in the market streamlines a payroll that adheres to the Government’s standards for tax and deductions. Choosing such platform can make you free from revising these laws timely.

Integrated Accounting

After distributing salary to employees, the financial records are stored in your company’s accounting/ERP for future requirements. The platform can guarantee you a fully integrated accounting management for secure post payroll processing.

Integrated Attendance and Leave Management

Scalability

Employee Self Service Module

Imagine that if your Employee can provide information on tax exemption and investment details through his/her employee portal without any HR intervention. The payroll management platform can facilitate your employees with ESS login providing your business more flexible and streamlined payroll. Employees can also generate form-16 regarding tax deductions for the subsequent year.

Resources:

https://www.investopedia.com/terms/p/payroll.asp
https://www.greythr.com/complete-guide-payroll/
https://factohr.com/complete-payroll-guide/
Payroll processing

A payroll process manages all the steps of paying your workforce, from gathering employee information to sending your staff their paychecks. Depending on your company, this process is either handled manually or is automated using a payroll system.

Disposable Income Calculation (1)

The Basics of Payroll Processing

All employers have to ensure they follow through on reporting payroll practices before submitting payroll tax payments to the relevant tax agencies. Below are the basics of payroll processes to help you get started on the right track.

Obtaining an Employer Identification Number (EIN)

An EIN, also known as a federal tax ID number, is a nine-digit number that identifies a business. Every business needs one to set up various tax accounts. Plus, banks require an EIN for opening business banking accounts.

Gathering Employee Information

  • IRS Form W-4 (Employee’s Withholding Allowance Certificate): This tells you how much federal income tax to withhold from an employee’s pay.
  • State W-4: While many states use the IRS W-4 form, others have their own version of the W-4. Before starting any job, your employees must complete a state W-4, unless the state doesn’t collect state income tax.
  • W-9 (Request for Taxpayer Identification Number and Certification): You don’t have to withhold taxes from an independent contractor’s compensation, but must track what you pay them and issue a 1099 Form at every year-end.
  • USCIS Form I-9 (Employment Eligibility Verification): All your new hires must complete this form to verify their identity and whether they have the legal authorization to work in the United States.
  • Health Insurance Forms: If you provide medical, dental, and vision insurance to your employees, all participating employees will have to complete these forms to determine any applicable payroll deductions.
  • 401(k) Plan Paperwork: If you provide a 401(k) option to employees, you should know the funds to withhold from your employee’s pay before depositing it into their 401(k) account.

Determining Taxes and Withholding

Your employee’s net pay is their gross wages or salary minus the various withholding (taxes, medical insurance premium, retirement contribution, etc.). Some deductions are made before taxes have been assessed, while some are after-tax deductions, which is where the complications arise.

Noting Payroll-Related Fees Not Paid by Employees

Federal Unemployment Taxes
As per the Federal Unemployment Tax Act (FUTA), employers have to pay federal unemployment taxes if they pay at least 800,500 in wages during any calendar quarter in the current year or the one before. Once the employee’s year-to-date wages exceed $7,000, the employer no longer has to pay FUTA for that employee in that tax year.

State Unemployment Taxes
Some states have their own unemployment insurance program. As an employer, you must register to file a wage report and submit tax payments. The State Unemployment Tax Act (SUTA) in these states sets the limit to how much of employees’ wages will be taxed.

Workers’ Compensation Insurance
Workers’ compensation is a type of insurance that employers purchase to cover costs associated with an employee’s work-related injuries and illnesses. Employees that collect workers’ compensation benefits are unlikely to sue their employers.

In most cases, workers’ compensation insurance is administered through a state-mandated program. However, federal employees’ workers’ compensation insurance and claims are handled through the federal government directly.

Setting Up End of Year Payroll Activities

You must keep records of withholding funds from employees’ pay throughout the year. This way, you’ll have all the data to report and summarize it on W-2 Forms (for payroll employees) or 1099 Forms (for independent contractors).

Every employer must send copies of each employee’s form to the IRS, the employee, and the Social Security Administration. Additionally, at the end of the tax year, employers must submit IRS Form 940 to report their FUTA tax, along with any payroll and tax reporting forms needed by the state.

5 Tools to Improve Payroll Processing

Gusto

Gusto payroll processing solution homepage.

Gusto helps businesses with onboarding, pay, and benefits. It lets you easily calculate and file taxes and helps with compliance, time tracking, PTO, employee benefits, and more. Plus, it gives the staff easy access to pay stubs, W-2s, and everything else your employee would need online.

You get a beautifully designed interface, along with plenty of features to make payroll as simple and straightforward as it can be. Thanks to its easy software setup, you can be ready to run payroll in a few minutes flat.

OnPay

OnPay payroll processing solution homepage.

When you have tipped employees, you’re responsible for withdrawing and paying income, Social Security, and Medicare taxes on all of your employees’ tips. While this would’ve made tax compliance harder, you won’t feel much of a difference if you use OnPay.

Because of its automatic tax calculation functionality, the software can automatically deduct taxes from every paycheck after your employee enters their tips. It can also pay and file your taxes quarterly with the right government agencies to further reduce any burden.

Paychex

Paychex payroll processing software solution homepage.

It has a modular format that makes it easy to scale between small and larger-sized businesses. You can process complex payroll on different schedules in just a few clicks. Depending on the plan you choose, employees can receive payment via direct deposit, paper checks, or prepaid debit cards.

Zenefits

Zenefits payroll processing software homepage.

This payroll software can simplify administration features with its self-service benefits portal. Here, employees can update their benefits coverage and personal information by themselves, making the lives of the employer and the employee easier.

SurePayroll

SurePayroll payroll processing software homepage.

SurePayroll is a comprehensive solution that is user-friendly and fast processing when it comes to handling payroll functions. It is an online payroll system that comes equipped with all the necessary features for efficient payroll processing.

Although designed for small business organizations, even medium business owners can take advantage of the software. It offers several functions, such as wage calculation, record keeping, regulation compliance, tax calculation, and so on. What’s more, SurePayroll has a mobile app that can be downloaded on iOS and Android devices for payroll processing on the go.

Payroll in action

Alt text: QuickBooks dashboard with profit and loss highlighted

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Resources:

https://www.quicksprout.com/payroll-processing/
https://apspayroll.com/blog/how-to-process-payroll/
https://quickbooks.intuit.com/payroll/

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