Payroll

What is Payroll?

Payroll refers to the entire payroll management process. This includes acquiring the necessary employee information for each person on the payroll, as well as calculating hours, wages, deductions, and net and gross pay.

Payroll is defined as the list of employees of a company who are entitled to receive payments for work performed or services provided, as well as other work benefits and the amounts that each employee should receive.

This process consists of collecting the list of employees to be paid, tracking their hours worked, calculating their pay, distributing the pay on time, and recording the payroll expense.

Payroll does not typically include freelancers or contractors.

Why is Payroll important?

The payroll process is one of the most important aspects of business because it affects employee morale and reflects a business's financial stability and reputation. Because employees rely on their paychecks, errors or untimely payments can create a lack of trust. But when paychecks are accurate and delivered in a timely manner, employees are more engaged, motivated, and loyal. 

The payroll department is defined as the department that manages payroll in an organization. Payroll is typically managed by the Human Resources and Accounting departments. Human Resources collects and enters employees’ data for payroll purposes, and Accounting completes the calculations for taxes, wages, and benefits.

Payroll is the one department in an organization that cannot afford to make any mistakes.

How does payroll work?

Payroll processing must ensure compliance with state and federal regulations. Typical payroll steps include the following:

• Define payroll policies and procedures, including payroll schedule, payment method, vacation, and benefits.
• Collect the necessary employee documents.
• Calculate gross pay according to hours worked and benefits provided.
• Calculate the deductions.
• Calculate net pay.
• Pay employees via direct deposit, checks, or other options selected.
• Maintain accurate records.

Conclusion

Some businesses opt to outsource their payroll needs to accountants or bookkeepers, but many task payroll processing and management to the Human Resources department. In such businesses, HR is responsible for collecting the necessary information and forms from employees.

Processing an employee’s pay correctly can be challenging without the latest information and the right experts who continue to monitor ever-changing regulations. Therefore, when it comes to employees’ pay, it’s important to be well-versed on all payroll terms and to explain how they work, while having a full understanding of the rules around them.

For additional information, see terms entitled Pay Period, Pay Group, Pay Calculation, Gross Pay, Gross Wages, Hours Worked, Gross vs. Net Income, Gross-To-Net, and Deductions.