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 be 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.
Authored by: Dave Rietsema