What is Payroll?
The term “payroll” actually refers to the list of employees that receive compensation from a company. However, most companies generally use the term to refer to the money that is paid to the employees or the records that detail how much each employee has made. Payroll may also refer to the company, department, or software that is used to process paychecks and taxes or to the process of calculating and distributing employee paychecks.
Processing payroll is a very important function of any business and necessitates an understanding of current regulations, detailed tax knowledge to ensure proper withholding and filing, and a highly organized system that can be relied upon to pay each employee the right amount of money. For many organizations, using payroll systems or outsourcing payroll can help to mitigate stress and minimize errors.
Payroll and Form W-4
Form W-4 is required for each employee and helps to keep their information and tax filing status straight. Form W-4 should be filled out by each employee at the time of hire to ensure compliance with tax laws and other regulations. Form W-4 can be filled out and signed electronically using paperless onboarding functionality through some HRIS solutions, which can help to eliminate clutter and ensure more accurate and organized records.
Time Keeping and Payroll
Time and attendance tracking is valuable to payroll. Whether employees are salaried or hourly, time and attendance tracking can help to ensure that employees are being paid the correct amount for time worked and can cover a company from a legal standpoint. When time and attendance tracking functions and payroll functions are done electronically, it can be very helpful to connect the systems so that hours worked can be seamlessly imported into the payroll system.
An hourly employee’s gross pay is calculated by simply multiplying the number of hours worked by the hourly wage. For salaried employees, the amount of gross pay is the salary per pay period. The actual amount received by each employee is net pay, however, which is the gross pay minus any deductions.
Payroll deductions include many different items, including:
- Federal income taxes
- Social security taxes
- State income taxes
- Local tax withholdings
- Health insurance
- Dental insurance
- Charitable contributions
Payroll must be processed on a recurring basis and must be accurate each and every time. Since payroll is the single largest expense for most companies, it is very important that payroll is processed in a way that is efficient and reliable. There are several options for processing payroll.
Processing payroll manually is an inexpensive option but can be arduous. The IRS provides tax tables that you can use to calculate withholdings, but voluntary deductions must be figured out, as well. Keeping good records, organizing information, and ensuring consistent accuracy may be more difficult when payroll is processed manually.
Outsourcing payroll is an expensive option but may save you labor time and prevent costly errors. A payroll company will take care of all of your taxes and other payroll issues, ensuring a high degree of accuracy and reliability. A payroll company may also be able to help answer any questions that you have.
Payroll software is a good middle of the road option, affordable for most companies and simple to use so it saves some labor time. There are many different payroll software options, so you can select the amount of assistance that you need with payroll. Since payroll is still taken care of in-house with payroll software, it may be easier to make changes and retrieve historical data, which may also be a bonus over payroll outsourcing.
Companies put a lot of effort into finding out the reasoning behind certain business trends and expenses, continuously striving to utilize analytics and past data to make better decisions in the present and future. When payroll data is left out of this picture, it can leave a big piece of the puzzle missing. There are many ways that payroll data can be used to improve business processes and outcomes, but these may not be obvious at a glance.
Pinpointing Causes of Staffing Shortages
Spikes in overtime can indicate a staffing shortage that may eventually lead to bigger problems such as drops in productivity and decreased revenues. While the spikes in overtime may be a small piece of payroll data that indicates an issue, payroll data can also be used to solve the mystery of why there are staffing shortages. By bringing up historical data, it may be possible to determine whether the staffing shortages are seasonal, a result of call-outs, or a result of a larger issue.
By taking payroll data and splicing it into reports with other HR data, it may be possible to determine whether a slow hiring or training process is behind staffing shortages or if there is a problem with retention. By pinpointing the exact reason for staffing shortages, it may be possible to correct the issues for better future outcomes-such as decreased overtime and increased retention.
Bringing Performance Data and Payroll Data Together
While compensation is not the only driver of employee performance, performance and pay are undeniably linked. Using performance reviews to support pay increases is common practice, but reviewing performance information side-by-side with payroll information can help take compensation decisions to the next level. By optimizing the processes used to determine pay raises, employee satisfaction may be increased and the business may benefit from greater productivity.
In addition to pay raises and base pay, it may help to review how well bonuses work as an incentive. Are there obvious spikes in performance, better customer service reviews, or other improvements that correlate to bonuses that were given? Reviewing this information in one place can help to give you an idea of how well bonuses are working to drive desired outcomes and if they are not working and can help you to justify dropping them from the plan and trying other drivers.
Using Payroll Information for Budgeting
In many organizations, HR budgets are drawn up using data from the previous year in an effort to see how close actual results came to forecasts. This process is not completely useless, but it is flawed when pay raises and other payroll data is not taken into account. Using current payroll data to justify budgetary increases over the previous year can help to prevent going over budget and can bring actual results closer to predictions.
Using payroll data to determine why things are happening within an organization can give a better-rounded view of how the company works and can optimize decision making. By using the HRIS to its full potential and integrating payroll data with other data, you also help to ensure that your company is receiving the best return for the HRIS investment.
Authored by: Dave Rietsema