Understanding Payroll Systems 

Processing payroll is an essential part of running a business. Understanding payroll basics and staying on top of the process is the best way to ensure that everyone in the company is paid correctly and on time.

However, HR departments and employers may find the pay period tedious, time-consuming, and repetitive. It is challenging for executives to maintain an error-free payroll process, especially if the company has many employees. 

Fortunately, modern technology has innovated payroll software to make the process easier and more efficient. Companies can spend less time handling payroll to focus on productivity and growth.

Below is a detailed lesson on payroll systems, including how they streamline the business. 

What Is a Payroll System? 

A payroll system is a program that streamlines, manages, and automates the payroll process in a business. Such systems build a flexible policy, ensuring payroll is accurate and timely. Workpay is an example available to employers in Africa. 

Employers should avoid going past payday. Such mistakes can easily affect the employees' morale and job satisfaction, ultimately affecting the company's production. 

All employees expect to be paid what the company owes them on a specific date. A payroll system combines data from employee time and attendance, self-service, leave, and paid-off days to develop an accurate and statutory-compliant payroll. 

The process saves the HR department time and effort in computing payroll. Plus, it helps the business avoid financial and legal consequences due to non-compliance with the respective laws. 

Types of Payroll Systems 

Payroll is almost invisible to employees with proper execution, while slight mistakes are easily noticeable. So employers must choose an effective payroll system to ensure that payroll is accurate and timely. 

The following are the types of payroll systems available to companies:

1. In-house payroll 

This payroll system is popular among employers with a few employees and consistent working hours. Since managing wages, employee data, and reporting compliance in a company with few employees is simpler, an in-house employee can handle the responsibility.

But the responsible employee must receive proper training in payroll practices and statutory laws and have the latest reporting functions for success. Additionally, the in-house employee must collaborate with the team to ensure that upskilling and implementation of legislative changes happen on time.

An in-house payroll system relies on stand-alone or integrated software to compute payroll. An in-house payroll solution is an economical option for small businesses, and once the team grows, they can explore other options. 

2. Outsourced payroll solutions 

This payroll system involves hiring a firm specializing in processing payroll. Recruiting a firm to manage and process the company's payroll is easier and more convenient, regardless of employee number. It is the ideal solution for employers who do not have an in-house payroll employee. 

External payroll agencies offer payroll services such as time tracking and filing taxes on behalf of a company in compliance with the statutory laws and regulations.

Outsourcing payroll to an external service provider gives assurance of timely and accurate payments. This is because only trained finance professionals understand the ins and outs of payroll processing. 

Outsourcing a company's payroll means that they will export employee data to an external agency. They may have to adjust their payroll process to match another company. And while it costs more to get a high level of expertise, it is a worthwhile asset to invest in. 

3. Professional managed payroll solutions

Employers can hire a professional bookkeeper or a Certified Public Accountant (CPA) to run payroll. This option is popular among small and medium businesses lacking internal payroll resources. 

The bookkeeper or CPA will be responsible for filing tax forms and preparing the company's payroll. They will handle the payroll process while offering helpful insight to the company's management. 

4. Payroll software 

Software-managed payroll systems are becoming popular worldwide because they are cloud-based, cost-effective, easy to use, and efficient. With payroll software like Workpay, any business can easily automate its company's payroll processing. Employers prefer payroll software because it reduces human error and generates comprehensive payroll reports and pay stubs whenever needed. 

Functions of a Payroll System 

• Managing payroll taxes and filing tax returns 
• Processing paychecks 
• Generating payslips and reports 
• Keeping records in compliance with statutory laws and regulations 
  

Steps in a Payroll System

The payroll management process involves administering and implementing payroll functionalities. It also involves everything from inputting employee data to giving paychecks and reviewing and updating the payroll database. Once the employer selects a preferred payroll system, they should follow these steps to process payroll:

1. Define payroll policy 

These guidelines and regulations dictate how payroll processing should be carried out in a company. Some of the processes include the administration of employees' wages, deciding payment methods, and developing a payroll schedule. The most common payroll frequencies are weekly, biweekly, and monthly. 

A payroll policy will provide employee benefits such as overtime, tax exemption, and leave payments. It will also cover payroll deductions and tax withholdings. Defining a payroll policy is necessary for company transparency. Additionally, it ensures that every employee knows their rights. 

2. Gather employee information 

They collect employees' tax filing details, addresses, social security numbers, and bank details at this stage. If the company's payroll includes employee medicare and retirement savings, they should get official documentation showing that the employees have approved the deductions. 

HR software like Workpay will let companies store employee information in a single location for easy accessibility. 

3. Payroll calculation 

Next, they calculate the employees' gross pay. Gross pay is the total compensation earned by an employee before any deductions. The gross income for salaried employees remains the same throughout the year unless the employee makes overtime and additional wages. 

To get the monthly gross pay for salaried employees, they divide their annual salary by 12. For hourly employees, multiply the total number of hours worked in a given period by the hourly rate. 

4. Calculate payroll deductions

At this stage, businesses should reference every employee's tax details and review the country's laws regarding tax withholdings. Some of the deductions you may need to account for include:

• Income tax 
• Social security 
• Workers' union contributions 
• Health insurance 
• Retirement savings 

5. Calculate employee net pay 

Employees' net pay is their compensation after taxes and deductions. 

Net Pay= Gross Pay - Payroll Deductions. 

6. Approve payroll 

Before approving payroll, companies must ensure that all the calculations are correct to avoid errors in employee payments. 

7. Pay employees 

Once they verify and submit payroll, it is time to pay employees. This can be done using direct deposits, cash, mobile wallets, checks, prepaid cards, or pay cards. 

8. Report and update payroll records 

Once the employees have received their payments, companies update the payroll records and see the amount they made in tax contributions. Companies should also review the payroll data and generate payroll reports for actionable insights. 

Summing Up 

An effective and error-free payroll process is essential regardless of the business size. Payroll software like Workpay will save time, cost, and errors.