What is Payroll?
Payroll is a very important function of an organization where a salary record of employees is prepared and maintained. In other words, how much salary an employee has made in each month.
However, there are many things to consider for the payroll like the right amount a company should pay to its employees; tax deduction and distribution of paycheques to employee’s accounts. If there are few employees, then record keeping is easy to calculate individually.
But when there are thousands of employees, salaries structures of all the employees is different. Then companies use different software to maintain payroll of its employees.
Components of Payroll
There are four important components to consider while preparing the payroll of your company. They are as follows;
Gross wage or salary is the amount of money an employee has earned before deduction. For instance, if the gross salary of an employee is 10000$, then you won’t this figure in his account. It is because gross wage comprises bonuses, commission, and deduction of pension & retirement funds, health insurance, and tax. The resultant salary is usually much less than the gross salary.
If a company provides health insurance, pension, and retirement funds and other benefits, then it doesn’t that the company would pay for everything. You’d have to pay a part of it, and the other half company will pay for it.
All of these deductions are usually made before the tax calculation, but it also depends on what type of account the company has, post-tax account or pre-tax account.
Some companies use a 401k plan; 401k plan is that the company would pay 50% of the whole benefits, and the other 50% will be minus from employees’ account.
The federal government imposes certain a percentage of income tax which the company must deduct from the salaries of its employees. Some districts, cities, and regions also impose certain income tax on employees for which is also liable to withhold the share of tax for a specific location.
After deduction of all the taxes, the employee is left with the net income which one receives it in one’s account.
Social Security / Insurance
Before the deduction of income tax; the company deducts social security and health insurance funds from the gross salaries of employees. Half of which is paid by the company and the other half employee has to pay for it, which the company charges from one’s gross salary.
Why Payroll is Important
Payroll is not necessary for the company to keep the salaries record that what they’re paying to their employees, but it’s also important because of many other reasons which are as follows;
Boost up Employee’s Morale
One of the most important aspects of payroll and salaries is that it boosts the morale of employees. As long as the company keeps on paying well to its employees and they’re financially stable. Then people will be motivated to work because money is a very powerful motivator. However, people have needs that they want to fulfill it through money, and the company provides the money. That’s how the circle works.
Determine Net Worth
Companies usually increase salaries based on their daily & monthly performances and the achievements of the targets throughout the calendar year. Employees also keep on evaluating themselves by their payroll status in the company that how much they have earned so far; how much more they have to earn to reach a specific point.
Good salary packages are very effective tools to attract talented people into your organization. If you’re a good employer in terms of payroll and salaries and offering marketing competitive salary packages; then it’ll be much easier for you to fetch talent individuals.
Lower Net Taxes
If the company doesn’t maintain a proper payroll record of its employees, then it would end up in a massive lawsuit. The other advantage of record-keeping is that salary deductions from the company’s income sheet would make the profitless. Less profit means that less tax would be charged from the company.
Now, the question is how the process of payroll works; however, there are three stages involved in the process of payroll system which are as follows;
What is Your Payroll Policy?
There are many policies to consider such as percentage of health insurance, funds, leave deductions and late arrival rules. First of all, the company needs to define all of these rules and different percentages levied upon employees. Policies have to be realistic that the people could easily comply with it, the harder they are, the more difficult to follow.
In small companies, it is easier to collect information because there are fewer people. Data collection in the big companies, on the other hand, it’s a very lengthy and tiresome process especially if you’re using down versions of payroll software. It is because there are different departments from where you have to collect information, and then you’d be able to do something.
Validated the Information
Once the information collection process is complete, the next step is to check the validity of the information. You have to make sure that no one should be left because everyone in the organization is equally important and they have families and needs.
During Payroll Process
Once information collection and validation is done, the next point is to process the information. In other words, it means adjust the amount by deducting tax and funds from the gross salaries of all the employees. One should always make sure to take a second look before transferring it to their accounts.
The company is liable to send the deducted amount from the account of the employees to the relevant departments of other organizations like insurance companies, government agencies, and social security services. Different companies use different methods to transfer the dues and payments; usually, it is done by challan form.
Payroll Accounting Treatment
Usually, companies maintain a very good record of their payrolls; but it’s a good practice to enter the right information into different accounting books. Like employee’s account files, ERP system and the overall database of the company. If the right and exact information is to be found and entered everywhere, then things would run smoothly.
Different companies use different methods to release the payments like bank transfer or cheque issuance. Bank transfer is getting a very common practice because it’s simple and easier both for the companies and the employees as well. You also have to make sure that the concerned branches where employees usually withdraw money; they should have sufficient funds to complete the transaction. For this, you have to send salary advice to the relevant branches.
Understanding Payroll System
Payroll system is software that helps to perform various functions of payroll like deduction of
taxes, tracking activity of employees working hours that how many hours an employee has logged in to software, transferring of funds to the concerned organizations, printing, and issuance of cheques.
Payroll system software performs all of these functions and it requires very little input from the operator to work effectively and produce results.
Vendors, distribution channels, timing and functionality of different departments are different in different organizations. Therefore, there are different payroll software for different companies depending upon their requirements.
Benefits of Payroll System
Here are some of the benefits of payroll system software which every organization should consider using it;
Having said earlier that there are different software for the different organizations depending upon their needs; bigger and complicated software for bigger organizations multiple agencies and departments are involved.
On the other hand, simple and easy to use software for smaller organizations; their costs also vary from their usability and functionality. Usually, these software are affordable and much cheaper; if you compare the salary cost of hiring multiple people for this purpose for the long term.
When there are thousands of employees and dozens of departments are involved not only within the organization but also other organizations. Then payroll software at this stage helps you to minimize the risk of greater loss, one wrong entry can cost your organization in hundreds and thousands of dollars.
Manually collection of information from different departments is not only laborious but also time-consuming. Payroll system software automates the whole process at multiple levels, whenever anyone updates the system by new information. You’d receive the notification immediately, no time lost at all.
When things become repetitive, chances of human error also increase with more and more data. Software doesn’t get bored or tired; it just keeps on doing producing whatever it’s required to do with no errors at all. When hundreds and thousands of dollars are at stake, then one simple error can cost you a lost.
Reminder is a very good option; it’ll remind you and also perform the function at the specific time if you’ve put it on reminder. For instance, issuance of paycheques and transferring it into employees’ accounts at a particular date; it’ll perform exactly the same task at that particular date.
When You Should Outsource Payroll
In the past, when people use to work on the excel spreadsheet to prepare payroll of hundreds of employees. Companies used to hire dozens of people to prepare payroll slips because the process was so lengthy and time-consuming. At that time, some small firms also used to outsource the preparation of payroll slips to other organizations. It was because to avoid keeping a permanent payroll staff.
With the advent of payroll software, outsourcing has become almost negligible. Those companies outsource payroll processes that don’t have access to the software nowadays. Companies having the software, process payrolls and maintain their records by themselves.
Wrap Up Payroll
We are living in a competitive world, where our small mistake could be an opportunity for others. Therefore, it is highly recommended to upgrade your system software and start using the technology which competitors are using. It doesn’t matter whether you’re a big organization or a small firm.
However, it’ll not only be efficient and resourceful but also it’d save a lot of your time. Minimizing errors would lower the chances of a greater risk of loss.