Employers pay their employees’ wages using a payroll management system, to put it simply. Additionally, it is how they uphold their obligations to their staff, comply with legal requirements, and maintain accurate financial records.
What makes payroll management crucial?
Any business needs effective payroll management because it enhances employee engagement and ensures legal compliance. Employers risk wage claims and costly fines if they don’t have a reliable system in place for paying employees, depositing and filing taxes, and keeping track of their financial transactions.
What are Some Payroll Management Techniques?
Employers have a variety of options for payroll management depending on their budget and desired level of involvement, including:
1. Handling Payroll Manually with Spreadsheets
Payroll management may be done manually by small business owners using spreadsheets. However, the risks frequently outweigh the potential cost savings. Manual DIY procedures increase the possibility of expensive errors and divert time from tasks that promote business expansion.
2. Software for Payroll Management
By automating labor-intensive tasks, top-notch payroll software reduces administrative burdens and saves time. Employers can rely on it to accurately determine gross pay, deductions, and net pay while still giving them some degree of control over the procedure.
3. Externalising
Employers who want to completely offload the burden of managing payroll frequently hire an administrative services payroll provider or agree to a co-employment arrangement with a professional employer organisation (PEO).
What are the Phases of the Payroll Management Process?
Regardless of how employers choose to manage payroll, the process generally consists of three phases:
- Pre-payroll
Employers gather relevant data for the pay period based on defined company policies and regulatory requirements, including hours worked by non-exempt employees, exception time (i.e., vacation, sick, jury duty, etc.) and employee adjustments, such as new hires, separations, salary increases or changes to benefit deductions and tax withholdings. This information is then verified and used to process payroll. - Calculations
Employers calculate the total gross pay each employee earned during the pay period and withhold taxes and deductions, resulting in net pay. They also accrue their own tax liability for the same time frame. - Post-payroll
Employers reconcile their payroll, deposit their taxes by the appointed due date and process any related payments, such as wage withholding orders. Additionally, they compensate their employees, along with a pay stub or wage statement, which is required in most jurisdictions.
What Tasks Does a Payroll Management System Perform?
It’s frequently necessary to carry out the following duties carefully and keep an eye on changing regulations in order to successfully move through each payroll management phase:
Determine the Employee’s Pay.
Employers are required to precisely track the hours worked by non-exempt employees each workweek in order to compute pay using time sheets or time and attendance software. For salaried workers, time tracking is less important because their gross pay is calculated as the product of their annual salary divided by the number of pay periods in the year. However, some non-exempt workers may receive a salary; in this case, it is necessary to monitor their hours to make sure that any overtime work is compensated as required by law.
Employers are required to process certain payroll deductions, such as: taxes after determining each employee’s gross wages.
Based on the withholding certificates of their employees and the total taxable wages, employers deduct taxes.
Discretionary Deductions
Before an employer can deduct retirement plan contributions, health or life insurance premiums, or union dues, the employee must give written consent.
Required Deductions
Typically, employers are informed that they must withhold IRS or state tax levies, child support, or other wage garnishments by a formal order from a government body or court.
The employee’s net or take-home pay is calculated by deducting all deductions from the gross wages.
Organise Payroll Taxes
Federal, state, and local taxes must be computed by employers and withheld from employee wages. Current tax rates, each employee’s Form W-4, Employee’s Withholding Certificate, and state or local withholding certificates are used to calculate the precise amounts. Employers may be solely responsible for paying federal and state unemployment taxes in addition to being required to match employee Social Security and Medicare contributions, also known as FICA taxes. However, some states mandate payroll deductions from employees to fund programmes for paid family leave, disability, and state unemployment insurance. By the deadlines given, all payments must be delivered to the appropriate government offices.
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