What is Payroll Processing? How to Process Payroll in 7 Steps

Payroll processing is the methodical way for businesses to manage their employee payments. It involves calculating salaries, tracking deductions like taxes and benefits, and ensuring that everyone gets paid accurately and on time.

Also, this systematic process helps companies handle employee compensation in compliance with regulations and company policies. Over time, the evolution of payroll processing has revolutionized how businesses operate by introducing advanced technologies that have significantly improved accuracy, reduced errors, and increased efficiency in financial management.

With all these perks, companies can now manage complex regulatory policies while fostering a conducive work environment.

What is Payroll Processing?

​​Payroll processing refers to the complete management of employee payments within a company. It involves carefully calculating, tracking, and disbursing salaries while ensuring precise deductions for taxes, benefits, and other expenditures.

Organizations may adopt diverse approaches to managing their payroll—manually through designated personnel or HR departments, or using automated payroll processing systems that can transform and optimize the payroll process.

The goal of payroll processing is to accurately pay employees while following rules and regulations. This means understanding the steps involved, whether handled in-house or through specialized systems, to ensure employees are paid correctly and in line with the law.

How to Process Payroll in 7 Easy Steps

A payroll system is more than just compensating your employees. It’s an integral part of business operations, intertwined with state and federal laws that impacts your company. Understanding regulations is crucial for small to mid-sized business owners.

Here are 7 basic steps in processing payroll and some legislative details that are important for compliance. So read ahead to know more about crucial payroll process steps and how to create payroll.

Step 1: Collect Employee Tax Information

The primary phase in payroll processing involves gathering essential tax details from your employees. Traditionally, employers collected tax details by having employees fill out different tax forms to check eligibility and fulfill state-required withholding.

However, modern payroll systems simplify this task by providing an easy-to-use digital platform. This platform allows employees to securely fill out and submit tax documents online, reducing paperwork and ensuring compliance with tax regulations set by the Indian Revenue Service and state revenue departments.

Step 2: Create a Record Management Process

Record-keeping involves managing different documents related to employees, such as contracts for their jobs and papers that explain the extra advantages they receive from working. Maintaining an organized employee record management process ensures accuracy in payroll deductions and other employment-related documentation, essential for payroll process in HR.

Methods include paper-based filing systems, onsite servers, or cloud-based document storage, each with its advantages in terms of accessibility and compliance.

Paper files involve storing physical copies securely, but as businesses grow, maintaining these files can become cumbersome. Onsite servers offer a digital alternative, saving physical space, but they require adequate hardware and secure facilities.

Cloud-Based document storage, favored by many, provides accessibility from anywhere, reducing compliance risks, administrative burden, and the need for extensive storage equipment. These cloud-based platforms offer unparalleled efficiency and adherence to compliance standards, making them an appealing choice for contemporary businesses.

Step 3: Determine Pay Schedules

Accurate employee information paves the way for deciding on the frequency of payments in the payroll process. Typical pay periods like bi-weekly, semi-monthly, or monthly are standard for businesses.

Sharing this schedule with employees is crucial for transparency and allows them to anticipate payment timelines. Each payment frequency has its administrative nuances affecting the time spent on processing paychecks.

Step 4: Track Time and Attendance

Accurately tracking employees’ work hours, breaks, and attendance is crucial for a precise payroll system in HR. This involves recording when employees start and end work, as well as their break times.

Using various methods like time cards, timesheets, or mobile apps helps cater to different preferences, ensuring that all employees’ working hours are correctly recorded.

The shift from manual tracking to automated tracking with HRMS software, such as SkizzleHR, offers businesses versatile methods like biometric, mobile apps, facial recognition, and geo-tagging. This ensures accurate attendance tracking and facilitates precise wage calculations based on recorded work hours.

Step 5: Calculate Deductions

Calculating deductions involves understanding categories such as pre-tax, tax, and post-tax deductions in the payroll process. These deductions impact an employee’s net pay and require a calculation involving the gross pay and mandatory deductions.

Pre-tax deductions are amounts subtracted from paychecks before taxes, like health insurance or retirement contributions. Tax deductions cover amounts owed to the government, determined by employers and sent to the authorities.

Post-tax deductions occur after taxes and might include payments for extra insurance, specific retirement contributions, or legal payment orders like wage garnishments, shaping the final take-home pay for employees.

After finding out how much an employee earns before any deductions (called gross pay), you then take away the money for pre-tax, mandatory tax, and post-tax deductions from that gross income. The amount left after subtracting these deductions is what the employee actually gets paid (this is called net pay).

Imagine you earn $1,000 before any deductions. If $200 is taken out for taxes, $50 for insurance, and $30 for retirement, you’d subtract $200 + $50 + $30 from your $1,000. This leaves you with the amount of money you’ll actually receive in your paycheck, which is called net pay.

Step 6: Pay Employees

After calculating take-home pay, it’s time to initiate payroll processing. Ensuring accuracy and timeliness in compensating employees, whether through direct deposit, paycards, or printed checks, is crucial in the payroll process.

It’s crucial to consider holidays that might impact processing schedules, especially with manual processing or when using payroll providers. SkizzleHR, well-known for its user-friendly interface and automated payment features, effectively streamlines payroll disbursement.

By offering multiple payment methods, the software simplifies payroll processing, guaranteeing accurate and prompt payments to employees, even during holidays or varied processing methods. This ensures a smooth payroll experience while maintaining accuracy and efficiency.

Step 7: Submit Payroll Tax Payments and Filings

After completing payroll processing, employers have the responsibility to meet their tax obligations, including sending withheld payroll taxes to relevant government agencies. Compliance with local tax authorities and payroll tax administrators is necessary, as specific requirements may vary based on business location.

SkizzleHR simplifies these procedures through tax compliance, and automating payroll tax payment and filing processes. Its integrated system consistently updates the latest tax regulations, facilitating businesses to accurately and efficiently meet their tax obligations.

Conclusion

Payroll processing stands as a critical aspect of any business, requiring meticulous attention to detail and adherence to ever-evolving regulatory norms. To perform such brainstorming calculations and paperwork effectively, modern solutions like SkizzleHR simplifies complex payroll tasks while ensuring compliance with tax laws and regulations.

Its intuitive features streamline tax filings, automate deductions, and facilitate seamless payment processes. Also, user-friendly interface ensures accurate and prompt disbursement, contributing to a hassle-free payroll experience.

By employing payroll processing softwares, businesses can confidently manage their payroll requirements, minimize errors, and streamline operations that would increase efficiency and compliance within their payroll processes.