Payroll processing is a system of managing and handing over the payment of your employees. To make sure your company employees are paid on time, your company needs to develop a proper payroll process.
While maintaining a healthy environment with a simplified workflow, you have to develop effective processing of payroll no matter what the size of your company or organization is. The system can be operated either manually or digitally. But a better option would be to use the right payroll software with managed services to ensure accuracy. A range of banks, healthcare, restaurant, and hotel payroll software programs are now available for companies belonging to different industries to streamline their payroll procedures.
The following is a step-by-step detail of payroll processing. It’s crucial to follow these steps to help your business stay on track.
Employee’s Identification and Tax Information
The ground step is to establish the identification number of your employee along with the local tax ID. The EIN is utilized by your government or IRS to identify whoever pays the employees. Then comes the crucial part of gathering tax information from the employees. In the U.S, the employee has to complete and file their Form- I-9, and W-4. It is necessary to also show your state withholdings. With the help of these forms, the IRS and state department of revenue can get your necessary tax withholding information. In case you want to offer a direct deposit, get the employee’s bank information with their consent.
Develop a Payroll Schedule
After getting the required legal and tax information, it is time to set up the best payroll schedule. Try to get a better understanding of all 4 types of schedule, that is, weekly, biweekly, semimonthly and monthly, so that you can pick the one most suitable for you. The schedule has to be designed and shared with employees at the start of the month. Also, establish a delivery method that’s most preferable for your employees.
Maintain Records
A record of an employee’s working time is important. With this time record and attendance, you get the right idea of their work hours and then determine the pay accordingly. For effective time tracking, you can either ask the employees to manually fill out the time cards or use time tracking software for this purpose. The software will develop timesheet records for you.
Evaluate Gross Pay
Now that you have a record of all the employees’ work time, it’s time to calculate the gross payment. If you are using software for payroll, it will do this part of the job for you. The overtime calculations will also be sorted out by the software.
For manual processing, calculation of salary and monthly employees will be done differently. To calculate the gross wage of an hourly employee, simply multiply the number of hours with the determined hourly wage. In the case of salary employees, their gross wage will also include overtime or bonuses and reimbursements. For calculation, divide the annual salary by the number of pay periods in a year.
Evaluate the Deductions
Now comes the tricky part. Calculating the deductions is a bit complicated as it varies from state to state and business to business. Deductions can be any of the three types: Pre-tax, Tax, or Post-tax. Before deductions, check in with the state policies. Some common deductions include:
- State taxes
- Local taxes
- Federal taxes
- Social securities
- Health or life insurance premiums
- Retirement Contributions
With payroll software, you can set up the deductions accordingly and they will get deduced automatically.
Conclude the Net Pay and Pay your Employees
Done with gross pay and deduction, now it’s time to calculate the net payment. This is the amount you will send to your employee through one of the following ways of payment:
- Cash
- Direct deposit
- Paper check
- Mobile wallet
- Final Statement
Be mindful of the calculations and make sure to consult an account while following the above steps of the payroll process.
As said above, you must rely on payroll software for automating the entire process and making it error-free and quick. And for this, you can trust Netchex. It’s one fo the top payroll software programs out there.