PAYROLL SYSTEM

DEFINATION:
Payroll is the means by which a company pays its employees for se
rvices rendered. The most common payroll frequencies are weekly and biweekly.

An Introduction to Payroll Systems:

A payroll system can be manual, in-house computerized or outsourced, exte
rnal. With a manual system the employer processes its entire payroll by hand, in
cluding wages, deductions and tax calculations. To reduce the risk of errors, th
e employer should use this method only if it has few employees. An in-house comp
uterized system means that the employer buys payroll software and uses it to pro
cess its payroll on site; the software calculates wages, deductions and taxes ba
sed on inputted data. An outsourced system the employer hires an off-site payrol
l service provider to process its payroll.
Timekeeping
Employers with non-exempt workers, those not exempt from overtime p
ay therefore must keep a record of hours worked for each employee. Any timekeepi
ng system is fine, but it should be accurate, complete and compatible with the p
ayroll system being used. With a manual system, for example, the employer can us
e a standard punch clock or have employees complete weekly time sheets. With an
in-house computerized system, the employer can use a computerized time clock or
time clock software, which imports the time into payroll software. With an exter
nal system, the employer sends the payroll hours to the payroll service provider
to pay on the upcoming pay date.
Implementation
A manual payroll system is quite inexpensive. The employer can buy s
tandard time sheets -- or a punch clock -- and blank checks with the check stub
attached from an office supply store. If the employer does not have to give empl
oyees a check stub, it can use its bank checks. It can hand write the paychecks
or print them on a typewriter with an erase feature. If the system is in-house c
omputerized, the employer can purchase the software package that best suits its
needs. Small companies, for example, can use QuickBooks; medium-sized companies
can use Ultimate Software and enterprises with more complex payroll requirements
can use Condata. If the employer chooses the external system, it can, for examp
le, choose an online payroll service provider with the ability to manage employe
e payroll accounts and print payroll reports online. If the employer offers empl
oyees direct deposit, it should forward bank account information including accou
nt and routing numbers to the payroll service provider.
Considerations
If the payroll service provider will be handling the employer's tax
and benefit matters, the employer must sign a power of attorney document giving
the provider legal right to do so. The employer should always, however, double-c
heck the providers' work for errors because the federal -- and in some cases the
state -- taxation agency charges the employer for payroll tax errors a third pa
rty makes.
advantages of payroll system:
For employees to get paid, the employer must have a payroll system i
n place. The type of system is up to the employer and should be based on his nee
ds. He may use a manual, in-house computerized, or external (outsourced) payroll
system. A payroll system provides a number of benefits.
Allows Timekeeping
Generally, salaried employees do not punch time clocks because they
are paid a firm wage each pay period. Therefore, employers often do not track sa
laried employees' time. Hourly workers are paid based on hours worked and may qu
alify for overtime pay. Consequently, the employer must enforce a timekeeping sy
stem, which allows him to monitor hourly employees' time and pay them accordingl
y. According to the U.S. Department of Labor, the employer can use the timekeepi
ng system of his choice as long as it is correct and complete. A payroll system
allows the employer to incorporate a timekeeping system, which ensures that empl
oyees are paid according to their hours worked.
Enables Payroll Processing
A payroll system allows the employer to perform the tasks necessary t
o ensure accurate and timely paychecks. Payroll processing duties include coding
and paying employee hours. For instance, if an employee takes vacation or perso
nal hours, the hours should be coded and paid as such. Payroll processing may al
so include direct deposit, payroll taxes and benefits processing.
Depending on the system used, tasks may vary. Manual payroll process
ing may include manually calculating time sheets and printing employees' paychec
ks on a typewriter.
In-house computerized payroll processing may include an on-site payr
oll staff and using payroll software to process the payroll. External payroll pr
ocessing includes entrusting the payroll to a payroll service provider; the empl
oyer ensures the latter receives the necessary data to process the payroll.
Coordinates Departments
If the company has an accounting department and/or a human resources
department, the payroll department usually has to work closely with these sub-d
ivisions. For instance, accounting may handle payroll reconciliation, and human
resources may handle benefits administration. Through the payroll system the emp
loyer creates procedures that coordinate the payroll department with these other
departments. For example, for each pay period, the payroll department forwards
the necessary reports to accounting for reconciliation. In addition, it assists
human resources with tracking employee's benefit days, such as vacation time, pe
rsonal time and sick time.
Meets Compliance Criteria
Payroll tax laws are ever changing and can be quite complex. Th
e employer must withhold federal, state (if applicable) and FICA taxes from empl
oyees' paychecks. Plus, he is responsible for his own portion of taxes. Furtherm
ore, the DOL notes that employers must maintain payroll records for a minimum of
three years. A payroll system allows the employer to structure his payroll so h
e complies with payroll tax laws and meets record-keeping requirements. For inst
ance, if he uses the external payroll system, he may give the payroll provider "
Power of Attorney" to handle the company's payroll tax matters.

BALVA VIJAY R.