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“Payroll” refers to a list of salary and hourly pay rate information of all employees working under a company. Some companies also refer to it as the total pay an employer owes employees.
Employers are responsible for managing payroll each pay period, so workers receive their salaries properly. Payroll entails more than just a payment.
Payroll processing departments are in charge of processing payroll and paying employees of an organization. When calculating each employee's paycheck, they consider many components, including taxes, hours worked, overtime hours, company withholdings, etc.
The payroll system has many vital components; however, three main features must be present to issue a paycheck from the payroll.
A company can only provide a paycheck fairly with the employee's pay information. An employee’s payment type, such as hourly, weekly, or monthly, lets a company add a definite and accurate amount of salary into the employee’s bank account each pay period.
All information about an employee's paycheck is detailed on the pay stub, including overtime pay, reimbursement, deductions and withholdings, compensation, the number of hours worked, extra pay, gross pay, etc.
The U.S. Federal Law requires employers to provide new hires with W-4 immediately after joining. The new employee must fill out the W-4 Form, including their name, address, Income Tax Withholdings, Social Security Number (SSN), employer details, etc.
The W-4 Form will then be passed to the Internal Revenue Service (IRS) as a record. It will also help companies carry out deductions effectively without receiving a complaint from the employee and make payroll processing faster.
Employers always deduct a portion of an employee’s salary before they receive it because of taxes, insurance, withholdings, and many others. It benefits employees as employers send the amount to the respective departments, and employees remain hassle-free.
Some standard deductions are taken out of the paycheck before each pay period.
Payroll Processing cannot run smoothly with only three components, even if they are the primary ones. The other required components for Payroll processing are:
Payroll is related to finance; logically, it must be handled by the organization’s Accounting Department. However, as the process deals with the employees of an organization, some organizations choose to have a Human Resources division to manage Payroll. This lets the organization avoid policy or law violations and efficiently manage pay.
A company starts employees' payroll when they first fill out the W-4 Form. The form records all the taxations and tracks the deductions split by the company and the employee in a year.
Then, the company calculates the employees’ gross pay and then proceeds to deduct the taxes and other withholdings, leading to the employees’ net income. This process is repeated each pay period, and the company deducts a percentage of the amount from the paycheck before handing it out to the employees.
The payroll process may seem like simple work, but it has a lot of steps before a paycheck can be issued under an employee’s name. There are mainly five essential steps of Payroll:
Different companies have different ways of calculating their employees’ payroll. The payroll calculation mainly depends on the variables a company considers when calculating. It can include bonuses, in-house withholdings, compensations, awards, etc.
However, a general rule of calculating Payroll is deducting the deductions from an employee's gross pay, resulting in net income. Nowadays, payroll calculation has become more straightforward with different methods.
