The processing of payroll is a frequently mentioned term for salaried employees working in payroll of an organization. But what payroll processing means, what components are evaluated to form a payroll is still unknown to many. In the new-age business world, payroll software plays a vital role in fastening the payroll processing as well as enhancing its efficiency by automating the tasks of payroll process.
In this blog we will get you an in-depth insight of everything associated with payroll processing such as the steps involved in processing the payroll, the components that are evaluated to get the amount to be processed in payroll, different types of payroll processing and so on.
Let us dive in to know more:
What is Payroll Processing?
Payroll processing is the administrative task of managing employee compensation within an organization. It involves several steps to ensure that employees are paid accurately and on time. Here’s a general outline of what it includes:
- Data gathering from employees timesheet
- Calculating pay by adding the allowances, perks, and compensations.
- Deducting the taxes, insurances and other with holdings such as advances and so.
- Evaluating the net pay
- Distributing the pay via check slips, cash, account transfers, NEFTs, digital transfers and, etc.
- Maintaining the records of pay generated, dates on which it has been generated and other details of employees, etc.
- Ensuring alignment of payroll with compliances such as state, taxes, center taxes, company norms, etc.
- Addressing any payroll related queries from the employees
An effective payroll processing is inclusive of all the above steps and it also keeps tracks of employees’ earnings, deductions and tax with holdings from time to time. Payroll software in India is an efficient solution to achieve effectiveness in payroll processing as it not only quickens the process but also improves its efficiency by eliminating human error.
What are the Types of Payroll Processing?
The processing of payroll by various organization is dependent on varied factors such as size of organization, their investments, work culture, ability to finance, the geographical location it is prevailing in, etc. the Let us learn the different types to process the payroll of the organization:
1. Manual Payroll Processing
The manual way of payroll processing is using the timesheet or Excel sheet for evaluating the components of payroll such as gross pay as per attendance, making deductions out of it and summing the allowances, perks and compensation to it to reach the net amount that is payable to the employee.
Manual process requires the human involvement to larger context in order to get the amount that is to be paid to the employee. It has high chances of human error and also consumes a lot of time. Usually it is used by small organizations having a workforce of something around 10-50 or less.
2. Automated Payroll Processing
Automated payroll processing is the new age processing of payroll by the HRMS software or payroll software that eases the tasks of HR by automating the entire payroll tasks starting from data gathering, calculating pay to compliance and record keeping of the employees for future reference. It provides the convenience to process payroll in just a click without much human intervention. It reduces the manual errors as well as fastens the process of payroll procession.
3. Outsourced Payroll Processing
It includes the processing of payroll by a third party or other organization. Here, the company contracts a third-party payroll service provider to manage all payroll-related tasks. This provider handles calculations, deductions, tax filings, and other payroll functions.
4. Hybrid Payroll Processing
Combines elements of in-house and outsourced payroll processing. For example, a company might handle basic payroll calculations internally but outsource tax filing and compliance.
5. Payroll Services with PEOs (Professional Employer Organization)
A PEO provides comprehensive HR services, including payroll processing, benefits administration, and compliance support. The PEO becomes the employer of record for tax purposes.
What are the Steps Included in a Payroll Process?
After learning about what is payroll processing, what are the elements included in it and so, Let us give you an insight into the steps that is included in processing a payroll.
The basic steps involved in a payroll process are as follows:
Data Collection: Gathering information on hours worked, overtime, absences, and any other factors that impact pay. This may involve collecting attendance timesheets or using automated time-tracking systems such as geo-tagging and geo-fencing.
Calculating Pay: Determining gross pay based on hourly rates or salaries, and then adjusting for overtime, bonuses, perks, allowances or commissions
Deductions and Taxes: Applying federal, state, and local taxes, as well as any other mandated deductions such as child support or wage garnishments. This step also includes calculating deductions like taxes, health insurance, retirement contributions, and other withholdings.
Net Pay Calculation: Subtracting deductions from the gross pay to arrive at the net pay, which is the amount employees actually take home.
Payment Distribution: Issuing payments through direct deposit, checks, or other methods. This step also involves generating pay stubs or electronic statements detailing the breakdown of earnings and deductions.
Record Keeping: Maintaining accurate records of payroll transactions for accounting purposes, compliance with regulations, and future reference.
Compliance: Ensuring that payroll practices comply with federal and state labor laws, tax regulations, and other relevant requirements.
Conclusion
In conclusion, the effectiveness of a payroll processing is majorly dependent on its accuracy, alignment with the compliance and evaluation of the employee pay. In contemporary corporate world the best way to achieve accuracy in payroll processing is by implementing payroll software that will get your work done in a blink without much manual intervention, hence reducing errors. Furthermore, for companies of small size and budget, manual processing is fine but it requires skilled professionals to handle the compliance, taxes and pay calculation with accuracy as major part of business success is dependent on its employees who works for a deserving pay.