How to Process Payroll in 8 Easy Steps for 2024

Payroll software allows you to still be involved in the process without having to calculate paychecks and taxes on your own. Maintain a standard payroll processing manual for the payroll department. This should include all the payroll processing steps as well as the reporting and check-handling processes. It will also be useful to have instructions on how to process payroll manually in case of emergencies.

This can be particularly beneficial in today’s remote work environment, where you may be managing payroll for employees spread across different locations. By leveraging the cloud, you can make your payroll process more efficient, flexible, and resilient. Your payroll budget should include not only wages and salaries, but also other expenses such as employer-paid taxes, benefits, bonuses, and overtime pay.

We’ll break down the process and important considerations to keep in mind. Both federal and state governments have laws about retaining and storing payroll records, in case government agencies need to access that information. For active employees, you cannot dispose of time cards for two years, and any payroll information regarding paid wages for at least three years. There are also laws governing the disposal of payroll records after termination.

Use Employee Scheduling & Time Tracking Software

Regular backups of your payroll data ensure you have a recent copy of all data if needed. Communication will help identify areas of misunderstanding such as improper time sheet submission or issues in the use of timecards. Inviting suggestions on improvement will encourage support from your staff after changes are implemented. Payroll will run a lot smoother if you have the correct documentation on file for your employees.

Manually in-house

Using a payroll service may take HR out of almost what is a activity cost driver everything related to payroll while using software might place HR in charge of all payrolls. While you can handle payroll yourself, we recommend finding an affordable payroll software or service to handle it for you to save time and headaches. Handling payroll for remote employees can be a bit more complex due to differing state tax laws.

common payroll mistakes to avoid

Gross income is the amount your worker is due before deductions, subtractions, taxes, or contributions are withheld. Net income is everything an employee earned minus the taxes, contributions, or any other withheld expenses. If they do well, you should reward them through payroll or other means. Before you put a worker on your payroll, you’ll need to classify the kind of work relationship your business has with them. You might need to submit a different kind of payroll depending on this predetermined relationship. A missed payday is not something that people working for you will take lightly.

Standardize Turnover Processes

However, some states have their own regulations that exceed federal standards, such as higher minimum wages or stricter rules on breaks. Employers need to stay on top of their tax obligations and any changes in state and federal reporting requirements. Changes can occur for various reasons, including business relocation, employee relocation, and hiring remote employees. When this happens, it’s the employer’s responsibility to gather and update the information it needs to compute payroll and taxes accurately. Learning to manage payroll on your own requires paying attention to the legal and tax requirements involved.

1. Automated systems can also be affected by data entry errors like incorrectly recording a new employee’s tax status (married vs single) or entering old pay rates.
2. Accuracy is important when processing payroll, and it all starts with properly monitoring employee attendance.
3. Keep reading to learn about the different processing methods or jump right to the section that’s most relevant to you.
4. These are just some of the advantages of automating your payroll system.

Employers need to file wages paid to employees, taxes withheld, Social Security and Medicare deductions and employer’s contributions to Social Security and Medicare. Employees must be sent a Form W-2 by January 31 of the year following their paid wages. This form lists the employer’s information, the employee’s information and tallies total earnings, taxes and deductions made in the year. For all other deductions, determine how much needs to be pulled from the gross wages and where it needs to be sent, such as health insurance provider.

Not sending the 1099 tax forms is one of the most common payroll errors companies make. Every business, large and small, that employs people has one thing in common – they all must manage payroll in some way. Due to the complexity and importance of the task, many employers choose to work with a payroll provider to help ensure that it’s done right. Working with a payroll specialist relieves some of the burden on your shoulders, allowing you to focus on tasks that you’re passionate about or need your assistance. Many payroll professionals can handle anything from collecting employee tax withholding information and setting up direct deposit to distributing pay stubs and filing taxes. The government identifies U.S. citizens using their social security numbers.