What is Payroll Processing?

Payroll processing can be a time-consuming and stressful process. Especially if you take care of your payroll in-house, it can quickly become a nightmare for business owners.

Staying on top of payroll can be a time-consuming and stressful process. Especially if you take care of your payroll in-house using small business bank or a third-party software, it can quickly become a nightmare for business owners. 

When you think of payroll you might associate with issuing paychecks. Indeed this is a very important part of the payroll but payroll is also about filing and withholding taxes and handing paycheck deductions like benefits and garnishments.

Employees of any organization are one of the most valuable assets when it comes to growing a business and making profits. The main ones who interact with all the clients, executing daily tasks and can help to bring new business.

All the employees of the organization work really hard for the company’s business, it is very important for them to be rewarded for all their time and efforts towards the organization.

Payroll isn’t something about making cheques and to keep a record of your employees getting paid on time. I

n fact, it is way more than that. When you get into the process of handling the payroll, you will understand it is really a difficult and complicated task, not as easy as it seems. 

One of the biggest reasons many organizations “more known as a small business” chooses to outsource their payroll to a third party. The third-party handles your payroll by giving you the freedom to focus on your business.

Payroll Process

  1. New Hire Procedures
  2. Wage Payments
  3. Payroll Taxes 
  4. Record Keeping 
  5. Proper Classification of Employees 
  6. Software for your Business
  7. Create a Budget

1. New Hire Procedures

When you are hiring a new employee, you are always required to perform a new hiring report with the designated state agency after they’ve been hired. That agency will go ahead and verify if your employees are legally allowed to work in the country and hand over to them the required tax forms to complete the details, Such as a W-4 for federal income tax withholding. If you don’t have this form you won’t be able to withhold the taxes of your employees. 

2. Wage Payments

It is very important to understand the federal and state minimum wage laws – as it is one of the most important things about payroll. Some of the states do have a higher minimum wage than the federal law requires. In such cases, the higher rates will apply. The minimum wage laws also apply to tipped and exempt workers – which is very important to know. 

Additionally, some of the states do require paid rest breaks and have the laws that require paying employees by a certain time. 

3. Payroll Taxes

Employment takes are broken up into two categories: Employer and employee liabilities. You will be responsible as an employer for withholding and paying federal, state and local employment taxes along with your own portion. You should report your taxes to the respective agency. Civil and criminal penalties may apply over you if you fail to comply with the tax regulations. 

Payroll is very complicated and detail orientated – seems very easy but no it's not. And this is a reason most small businesses find it more cost-efficient to outsource their payroll services to a third-party provider. 

4. Record Keeping

The main requirement of the Fair Labor Standards Act (FLSA) is to maintain certain records for both exempt and nonexempt employees. The FLSA also maintains the records. The required documents include employment contracts, time cards, and records that show the deductions from and additions to wages. You need to be in touch with your state in order to see if they have the record-keeping requirements as well. 

4. Proper Classification of Employees

The Fair Labor Standards Act (FLSA) sets federal requirements for exempt employees; they are excluded from the act’s overtime pay provisions. Employees who are not excluded are labeled as nonexempt, and they qualify for overtime pay if they work more than 40 hours per week. By classifying exempt and nonexempt employees, you might accidentally cause a misclassified employee not to receive the overtime pay he/ she might be entitled to.

In simple words salary-based employees are exempt and hourly based employees are nonexempt. 

It is important to understand the differences between an employee and an independent contractor. Accordingly to the IRS, an independent contractor is a self-employed person. An employee is always paid through payroll and an independent contractor is not.  

Classifying employee as an independent contractor can cause some issues for he/she to receive certain benefits that they might be entitled to such as overtime, family/medical leaves, and unemployment insurance. 

Software for your Business

When you are about to choose your software for your organization, go for the option that is hosted over the cloud. This will help you make it easier to access all of the information regarding your payroll in one place altogether. When and where you need it. 

While finding the payroll software, you should invest in a management program that can make it easier and stress-free payroll for you. 

For example: enable employees to integrate their payroll software into the system, which can boosts collaboration and improve communication during the payroll process.

Create a Budget

While planning your payroll be sure to budget your wages and taxes. As employees are required to pay Social Security and Medicare taxes from time to time. And some are required to pay unemployment taxes. Make sure to always plan ahead of all such expenses. 

Importance of Payroll

In short payroll processing is one of the extremely important parts of a business for legal and financial reasons. Your employees are one of the most important assets whenever it comes to grow or expand your business. 

  • According to Investopedia, payroll is “The sum total of all compensation that a business must pay to its employees for a set period of time or on a given date,” which includes salaries, wages, deductions, bonuses, and net pay.
  • In many cases, payroll is handled by the accounts department of a business/organization
  • Small-business owners may also choose for payroll to be managed directly in-house or by an associate.
  • Payroll marks up the largest deductible for a business, the expense it takes to compensate each employee’s salary or wage is remarkable.
  • Pay periods can also vary due to some situations like overtime or sick leaves.

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