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Steps in Processing a Basic Payroll

Payroll processing is very important for any business. There are many software and online utilities that can do this for you, but whatever the case – to run a successful business, you must have the know-how of processing a basic payroll.

Payroll processing can be very complicated and unique depending upon the kind of business we’re talking about. Some companies use cloud-based technology while some still use fully traditional payroll processing.

No matter what the case, payroll processing remains pretty much the same at its foundation. Here are the steps involved in processing a basic payroll:

(Note that there can be more or less steps involved based on the company’s preferences and convenience. This is a general roadmap for reference only.)

1. Find a suitable pay period: How frequently will you pay your employees? You need to figure out a suitable pay period for effective payroll processing. Bad decisions here can pull your company inside a black hole of losses.

2. Record time/hours worked: The next job is to record the amount of hours worked by the employees. You can get timesheets filled by the employees as well. The time worked is the most critical information.

3. Calculate deductions and additions: Of course your employees have different deductions and additions. Like medical insurance or cafeteria plans are some basic deductions. Some additions include bonuses, overtime pay (overtime hours to be filled in the timesheets), commissions, etc.

4. Calculate take-home pay after taxes: In most situations you have to fill central/federal and state taxes. In some situations, perhaps even more. You can use tax sheets if you’re going to do this manually. Otherwise take help from software where you just need put up a few numbers and percentages and the whole tax stuff will be automatically calculated for you. After calculating the taxes (for both, the employer and employees), you can pay those taxes and arrive at the “take-home” pay of your employees.

5. Process the payment: Once you have the take-home pay figured out after proper calculations and reviewing of reports – you can move on to process the payment using the method you prefer.

6. Backup data and lockdown period: Backup your payroll processing data for the time period in question, and lock down that time period to prevent further changes or accidental alteration of the sensitive information.

7. Prepare timecards: Employees can question their numbers. It’s often handy to keep timecards and reports ready to sort out any payment-related conflicts between the employer and the employees. In general as well, it’s a good practice to keep timecards ready even if no employee questions his or her pay. This maintains transparency and makes it easy for employees to get some reference about their payments.

8. Improvise your methods: Naturally, you won’t do it perfectly in the beginning. Always log all errors and mishaps that happen at your end of payroll processing. Learn from them. Think about how you can fasten this whole process, or how you can trim down on the workforce employed in payroll processing.

So that was it. These are the basic steps of payroll processing that remain pretty much the same throughout companies. Just the way of doing it changes, while some companies also skip or add a few in-between steps.

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