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Payroll Management Process: Importance, Payroll Methods & Solutions

Here’s what you are going to learn about payroll management in this guide:
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1. What is Payroll Management

2. Importance of Payroll Management
3. Payroll Management Process Sign Up Now
4. Payroll Processing Stages
5. Methods of Payroll Management
6. Payroll Management System
7. Payroll Applications Zapier Plugin

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What is Payroll Management

Payroll is an important document that is used by organizations and companies to perform
day to day sta management activities. It is a document that contains a list of all the
employees of a company who receive remuneration of work carried out or services o ered
to that company. It provides a summary of the entire money paid to sta by a company
within a speci c time. A payroll provides the following functions.

It contains a company’s remuneration strategy, which may include bonuses, leaves,

and deductions.
It provides a detailed payslip, which can be used for various uses. It also provides a
detailed breakdown of salary or wage.
It is used for paying salaries or wages.
It is used to collate payroll-related inputs.
It is used to determine actual remuneration.

For e ective management of nancial activities, a company of more than a sta must
possess a comprehensive payroll. The primary function of payroll is to assist a company in
timely payment of sta wages and salaries. It also helps with other essential activities, such
as income tax, unemployment tax, and social security.

In most cases, having a payroll is mandated by the state in which a company operates.
Certain jurisdictions require that the company must keep payrolls within a speci c
timeframe.

Payroll management is the administration and management of sta nancial reports, such
as wages, salaries, deductions, bonuses, and other relevant nancial records. It also involves
a continuous review and update of the payroll database to ensure that the status quo is
always captured with respect to the remuneration of sta .

Importance of Payroll Management

Maintaining a payroll by a company is extremely important for day-to-day activities and also
for adherence to jurisdictional requirements. In most cases, companies maintain a payroll
database via a payroll application software that is usually semi-automated and easy to use.
The importance of payroll, owning, and managing payroll, is highlighted below.

In most cases, the payroll management process is a repetitive and annoying process,
which can easily result in mistakes. Optimization of the process through the use of
computers and software application minimizes the possibilities of such mistakes. Also,
computers provide databases, which can easily be stored on storage devices and other
remote online cloud storage systems, which can be accessed using login credentials.
This provides an essential backup of payroll records in the event of a system failure or
hardware damage.

This also provides a graphical representation of the company’s payroll, which is vital for
nancial assessments. In instances of wage increment, a simple calculation can provide the
company with the full impact of such adjustment on the nances of the company.

Many companies spend a signi cant amount of time managing corporate and sta
income taxes. Payroll management is crucial as it not only eases the organization and
management of payroll but saves valuable time, which can be used for other critical
corporate activities. Also, without proper management of the payroll database,
accounting for relevant factors, which include overtime, vacations, and bonuses, can
become quite tricky. Also, varying taxes and deductions may apply to di erent sta .
Therefore, an application-based solution saves valuable time as editing of existing
payroll is simpli ed and semi-automated.
In most cases, the security protocol for the payroll database is of high-quality. Sta
data is always kept as con dential as possible, which translates to di erent levels of
administrative rights and privileges for access to the payroll database. It also allows
employees access to the breakdown of their remunerations.
Most modern payroll management systems are cost-e ective as they are, in most
cases, remote cloud solutions. A company only requires an active subscription to
maintain the database. Payroll management solutions require the least amount of
expensive hardware, which saves many resources. Also, a company can quickly expand
or reduce their requirements.

Payroll Management Process

The payroll management process is what a company does in the process of administrating
and implementing payroll functions. In this process, the business uses software applications
to record employee details and manage salaries, track hours, manage to leave, bonuses, and
deductions among other functions of payroll management.

The process also includes complying with legal requirements related to employee payments,
including income tax.

The payroll management process also includes putting in place a mechanism and system to
redress employee grievances.

The payroll process is integral to companies establishing integrity and nancial stability.
Where there is poor payroll management, organizations open themselves to potential fraud.

Payroll Management Process Stages

The process of payroll management requires careful and meticulous planning. Continuous
review and monitoring of changes to details relating to speci c employees concerning
payments, deductions, and other nancial payments. This payroll management process
consists of three distinct phases, which are before, during, and after the payroll
management activity.

1. Before payroll processing

Various factors are considered, which include bonuses, leaves, and other bene ts. The
determination of these factors is based on the approval of the decision-makers of the
company. Payroll generated in small companies is a ected by fewer factors. With more
prominent companies, the payrolls usually require software applications that ease the entire
process. In both cases, all data processed must abide by company policy and procedure.

2. During payroll processing

Veri ed data is used. This stage involves calculations, taxes, bonuses, and deductions.
Validation and veri cation of all amounts are done to ensure accuracy and avoid mistakes.

3. After payroll processing

All deductions are made here. The total funds budgeted on the payroll are disbursed
through the relevant payment channels.

Methods of Payroll Management

There are three basic payroll methods which are Excel-based, outsourced, and payroll
management software.

Excel
This is the cheapest option for payroll management. Start-ups and smaller companies
mostly use this approach. This method involves developing a payroll management template,
which allows for calculations and the use of mathematical formulae on Excel spreadsheets.
The downside of this method is that it is challenging to manage and prone to errors.

Outsourced

This is an option for companies that have the resources. A company contracts a third-party
payroll management service provider. For every cycle of payment, the company compiles
and sends out an updated payment schedule to the payroll consultant for processing. The
payroll consultant is responsible for reviewing and updating all payments and deductions
due to each employee. Although this option simpli es the work of the company, however,
the need for con dentiality may prevent it from outsourcing its payroll management.

Payroll management software

This provides a simpli ed option for a company. There are several reliable applications for
payroll management to choose from. Such software applications usually provide a template
for the input of the employee details and relevant input factors. The size and composition of
the company determine the best type of payroll software that is suitable for day-to-day
operations.

Other payroll methods

There are di erent types of payroll methods available to businesses – direct deposits, checks
(written or printed) cash, or payroll cards. While businesses can choose from these types of
payroll methods, employees get paid on three speci c pay rates:

Hourly wages
Base salaries
Commission pay

Payroll Management System

A payroll management system is a software tool that provides for the automation of payroll
management. The software helps a business or organization to manage the salaries, wages,
tax deductions, insurance premiums, and other aspects of remuneration of employees.

Companies also use payroll management software to track employee time o or accrual of
vacation leaves. You can access the software as standalone apps or as part of the HR
software package.

Bene ts of payroll management software

Payroll software is useful for compliance purposes- staying up to date with state and
federal laws
Automation helps speed up payroll processing and makes it easy to generate reports
e.g. for tax ling purposes. Payroll software will generate 1099-MISCs, 1099, and W2s
among others that are very vital for ling taxes.
Privacy of employee and company nancial data, which will likely not be the case when
you outsource to third party providers
Portals can o er employees access to their payroll data and for self-service processing

Let’s look at two of the bene ts: taxation reports and a self-service portal for employees.

Preparing tax forms can be a nightmare to your HR. With payroll software, it auto-generates
all tax forms for each employee in your organization. A payroll system helps to calculate tax
even with di erent rates and from di erent states. The system updates automatically when
tax rates change keeping your HR department on the frontline.

Large companies that have a large number of employees need a payroll management
system that they can access through a self-service option.

Human Resource persons are relieved of the duty to inform the employees of their details.
Each sta can use the self-service option to check the information they need such as time-
o , bene ts, and deductions among others. If they need changes made on the system, they
do so online without necessarily visiting the HR o ce.

The fact there is a self-service option can result in wrong data entry.  Once new data
di erent from the previous paychecks is entered, the system sends an alert to the HR
department that can then check and correct the error if necessary. This ensures no
discrepancy can go undetected.

Payroll Applications
Most businesses across the globe have integrated payroll management software,
streamlining payroll processes, for compliance, and improving tax ling as well as securing
the payroll system.

Payroll applications or Payroll management solutions allow many small and medium-sized
companies to handle their payroll management needs without having to outsource to a
third-party.

Here are the leading payroll management solutions vendors in the US.

ADP
Gusto
Paychex
Sage 50cloud
Paycor
EPAY Systems
OnPay
Patriot Software
Xero
Toast Payroll
Zoho Payroll

What to consider when choosing payroll management software

Ideally, every business should have a payroll management system. However, each business
needs will determine the kind of payroll software that best serves it. The following are
guiding principles when you want to choose payroll management software.

Reputation and trustworthiness

Get to know your preferred service providers from other companies using their payroll
services. Reviews about them also provide quality information. Request if the software
providers can also o er a free demo on how to use their system to see if it’s ideal for your
business needs.

Security

A companies’ payroll management system contains very sensitive information about

employees and the company. This data should be protected and handled by trustworthy
persons only. When choosing a payroll software vendor, make sure it has not had security
issues before and that the vendors are fully responsible for any security breaches.

Your business size

Small and mid-sized businesses may need a payroll system that performs basic functions as
compared to large companies that need a detailed one. Moreover, budgeting for the ideal
system is key in your business. If you are a small business, budget for a ordable software. A
large company needs to invest heavily in good and secure software.

Software reports and back up

As a company, you need to have access to the payroll reports when need be. Tye system
should be able to provide manual update options in case you need to correct some errors.
Systems at times fail and this requires proper back up of all payroll information in the
system.

Compatibility

You need to purchase software that can work together with the other systems in your
business. The software should also be exible enough to accommodate growth changes in
your business. It should be easy to integrate into the other nancial software you might be
using.

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