Payroll Definition

Explanation

The payroll process is the process by which the total amount of compensation is paid by the company to its employees during a given period. This process includes all the work starting with tracking the work done by the employees till the time when the amount is disbursed in the account of the employees. Along with this, the accounting of payrolls, taxes paid, and other extra pay will also be included. It is one of the major expenses of the company, and the same is allowed for deduction from gross incomeGross IncomeThe difference between revenue and cost of goods sold is gross income, which is a profit margin made by a corporation from its operating activities. It is the amount of money an entity makes before paying non-operating expenses like interest, rent, and electricity.read more to derive the company’s taxable income. Generally, the work is done by any company’sThe Full Form of HRD is Human Resource Development. HRD is a series of planned processes that aim towards the enhancement of knowledge, skill, personal development, well being, and lifelong learning & training of the workforce or human resources at an individual, organizational, regional, and national level for creating effectiveness & better workplace environment for the organization & employees.read more human resource developmentHuman Resource DevelopmentThe Full Form of HRD is Human Resource Development. HRD is a series of planned processes that aim towards the enhancement of knowledge, skill, personal development, well being, and lifelong learning & training of the workforce or human resources at an individual, organizational, regional, and national level for creating effectiveness & better workplace environment for the organization & employees.read more department.

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Payroll Process

Below is the process:

  • Firstly one should determine the gross pay rates of all of its employees.After that, all documents required for tax with-holdings and the deductions should be collected from the employees.Then calculate the amount of the taxes and the with-holdings.After step 3, the net amount is paid to the employees, along with providing the employees with a pay stub.Remit the entire amount deducted from the employees’ gross pay to respective authorities or the benefits providers.Lastly, completing all the paperwork and submitting the same to respective authorities.

Components

It is composed of the following components:

  • Gross Pay: is the total amount paid to an employee before certain reimbursementsReimbursementsReimbursement refers to the monetary compensation made by companies, organizations, or governments to employees, customers, taxpayers, or other entities for incurring expenses out of their pocket.read more and deductions. Sometimes, gross Pay may include bonuses, commissions, and other payments.Deductions: Payroll deductionsPayroll DeductionsPayroll deduction is the process of withholding different amounts from an employee’s salary, which are utilized for a league of payments such as retirement funds, tax payments, etc. The deductions may be mandatory or voluntary.read more can be broadly classified into pre-tax deductions and post-tax. Pre-tax deductions are not subject to tax, but post-tax deductions are not.Fringe Benefits: Fringe BenefitsFringe BenefitsFringe benefits refer to the additional compensation which is given by the companies to their employees whether for compensating against the costs in connecting with their work or for the job satisfaction and the examples of which includes health insurance, assistance for the tuition fees of the child or other reimbursements for the children, company car, etc.read more are additional benefits supplementing an employee’s salary. Examples: a company’s car, subsidized meals, health insurance, education assistance, retirement plans, etc.Tax: Employers withhold employees’ share of various types of taxes concerning their federal or state law, along with paying their portion of taxes.Net Pay: The total amount ultimately paid to the employee after adjusting deductions, benefits, and taxes.

Different Ways to Run Payroll

The different ways by which one can include the following:

#1 – Doing by Own

One can run the payroll process by himself and without the help of any person or any software. This way is time-consuming because one has to learn every aspect by himself.

#2 – Hiring a Payroll Accountant

Under this entire work of the payroll is outsourced to the accountant. These accountants will take care of the entire process, and thus it will save time. But this option can be availed by the person with enough money because it might be the most expensive option out of the available ones.

#3 – Using the Payroll Software

Nowadays, various types of software are available in the market, and most of them are inexpensive. With the help of this software, one can automate many payroll processing programs, and the same can also be customized as per the requirement. For using and purchasing this, a one-time charge must be paid along with the maintenance charges as required. But the same will save time as one must spend less time completing the process.

Difference between Salary & Payroll

There are many differences between Salary and Payroll, important ones of which are:

  • Salary refers to the fixed amount earned by an employee during his employment. In contrast, payroll is a proper function used by my employers to process and record salaries or wages paid to employees.Salary is a condition of employment, whereas payroll is a process.

Advantages

The following are the different advantages:

  • Simple Computation: Error-less and simple computations are made through the payroll system compared to manual calculations, saving time and money.Documentation: It helps create reports and financial documents easily, which are ultimately helpful in making certain comparisons (year to year, industry to industry, etc.) with no stress of maintaining payroll registers.Safe Backup: Maintaining registers manually is not an easy task. It helps secure backup of all payroll data online and presents it as and when required.Cost Cutting: This system aids in cost-cutting. Maintaining its registers requires hiring a person to keep the records. This system is easy to use and can be done in-house.

Disadvantages

The following are the different disadvantages:

  • Manual Payroll System: It has a high chance of errors. Wrong calculation of taxes and other important fields can sometimes lead to penalties. It is undoubtedly a time-consuming process since every field is to be filled, and every calculation is to be done by hand.Online Errors: Errors done manually can be traced easily, but errors, if done online, can be tough to trace.Privacy Concern: Since payroll management is usually outsourced or utilized through online services, sensitive information about employees no longer remains under privacy.Backup: Proper backup must be available in case of an accident resulting in computers or systems being damaged.

Conclusion

It can be referred to as the amount paid by the companies to its employees in the form of the net payThe Net PayEmployees’ net pay, often known as take-home pay, is their salary after all deductions.read more after deducting all the statutory dues and other things as required. It offers various benefits and has certain disadvantages too. The payroll process should be adopted by the companies keeping in mind the nature and size of the business.

This article has been a guide to what payroll is and its definition. Here we discuss the process, components, different ways to run a payroll, and advantages and disadvantages. You may learn more about financing from the following articles –

  • Payroll TaxIncome Tax vs Payroll TaxPayroll Records DefinitionDeath Tax MeaningPersonal Income Meaning