How does payroll work?

by Eddie van Zyl | Feb 11, 2020 | Payroll

Processing payroll is one of the most important, but time-consuming and frustrating tasks businesses face. Every time a new tax law is introduced, big changes to the process can result, especially if you’re shouldering all the responsibilities.

Ensuring accurate and timely payroll requires attention to detail and careful record-keeping, and it’s one of the top reasons why companies rely on a HR and payroll partner who has the experience to handle complex regulations.

If you’re wondering what the process even looks like, here’s an overview. And if you’re still bearing the brunt of the payroll process alone, we’ll discuss why finding the right partner can help free up your day, prevent costly fines, and increase your business productivity.

Payroll Processing in 6 steps

1. Gather Employee Information

If your business is US-based, Human resource managers will start by collecting some or all the following employee information:

W-4
Applicable state withholding certificates (many states require a form in addition to the federal W-4)
W-9 (if hiring independent contractors)
Form I-9
Complete job application
Bank information (if direct deposit is an option)
Retirement plan documents

2. Employee Timekeeping

Employees are then informed about their pay-check schedule and how the company expects work hours recorded. Typically, most employers choose to pay employees every four weeks.

3. Approvals for Payroll

At the end of the pay period, the payroll administrator verifies hours worked and secures approval for payment, including any supplemental income from bonuses or overtime.

4. Taxes and Withholding

Net pay is calculated based on gross earnings minus the total amount of deductions and withholdings (federal, state, and local taxes, retirement contributions, medical insurance, additional deductions such as child support, etc). When administrators calculate wages, they need to know which deductions to take before or after taxes have been assessed. For more information on tax withholdings, the IRS offers this comprehensive tax guide.

5. Submitting Payments

Pay checks are delivered to employees and the amounts withheld submitted to the appropriate entity. Employers are responsible for a share of payroll taxes. Calculating and submitting to taxing authorities on time avoids hefty fines and penalties.

6. Payroll Recording and Reporting

Federal and state payroll reports are generated and sent as often as quarterly. Payroll departments are responsible for a lot of data and paperwork, much of which is sensitive in nature. It can be challenging to develop an adequate filing system where all that data and employee information can be maintained and accessed whenever necessary.

Why Companies Adopt Technology to Manage Payroll

Payroll is a vital, but complex function of a business. Because of the strict compliance regulations and potential for employee lawsuits, most businesses utilise payroll technology that reduces the risk of errors, ensures compliance and saves time. Payroll software companies offer solutions that handle many of the tedious administrative payroll details and streamline the ever-complicated tax filing process so businesses can focus on accomplishing their goals.

Companies that don’t leverage the benefits of modern technology because “this is the way we’ve always done it” are at a huge disadvantage. Late adopters risk falling so far behind it will be difficult to ever catch up to the competition.

How to know if you need to outsource or automate your payroll processing

When it comes to managing payroll, there is little upside if you get it right and major downside if you get it wrong. Your people, and federal and local tax agencies, expect to be paid accurately and on time, and there are consequences when they aren’t. With a laundry list of regulations to maintain, staying in compliance is no easy feat. So, if you’re struggling with any of the challenges below, it’s time to consider making the leap.

Constantly changing regulations and payroll tax laws
New state and local requirements for employee benefits and wage/hour reporting
More time needed to address employee questions or concerns
Inefficient onboarding experience
Errors due to manual calculations and entries
Missed deadlines
Difficulty accessing specific information when it’s needed
Limited reporting options
Data that isn’t unified or integrated
Existing technology that’s outdated
Current system or process that can’t support company growth
Poor engagement with employees
No access offered via mobile devices
Data isn’t secure

Partnering with an HR & payroll provider gives you the freedom to spend more time focusing on your business. Customer service is important in every industry and it’s no different in the field of payroll processing. You’ll get peace of mind working with a company that provides instant access to expert support when you need it.

Think about how much easier it would be if your payroll system could:

Automate employee vacation and sick time requests
Customise files and itemise journal entries that import directly into your accounting system
Systematically pay out accurately and timely

Once you move to automated payroll, many providers offer the ability to scale services as your business grows. You can add integrations that streamline and consolidate all human resource activities into one cloud-based solution. When you’re ready, expanding your system makes it possible for you to:

Optimise your recruiting process and onboard employees with ease
Search your database of previous candidates to help fill current positions
Manage employee information all in one place
Utilise powerful reporting tools to help your company grow

Technology has transformed how we live and do business. Automating your payroll processing system streamlines tasks and improves efficiency, which translates into valuable time and money you’ll be able to apply elsewhere.

Selecting the Right HR & Payroll Provider is Critical

HR & payroll technology alone isn’t enough because technology alone fails to address your challenges. To achieve your goals now and in the future, you need technology plus expertise.

How can Africa HR Solutions help your business?

If you’re handling payroll on the African continent, chances are - you are having a tough time. With ever changing employment laws across the continent, hard to find documentation online and requirements varying on a per country basis, handling payroll in Africa can quickly become challenging.

Africa HR Solutions offers a range of reliable business services that can help your Organisation get started the easy way: