Payroll is the process by which an employer pays an employee for work performed. Here’s a short guide to understanding how payroll works.
One of the more complicated facets of a business’s operations is payroll. Making sure that everyone gets paid the right amount, on time, is no mean feat.
In this article, we’ll teach you all of the payroll basics that you need to know to run an efficient, accurate, on-time payroll for your business.
Build a Complete Compensation Package
The first thing to do with payroll is to understand how each employee’s compensation packages will work. Different employees across different teams will probably be paid according to different structures.
For instance, a janitorial employee may get paid on an hourly basis, requiring some method of clock-in and clock-out to be performed in order to calculate accurate payroll. On the other hand, someone on the sales team may get paid a base salary with performance-based commission on top of that. Another team member could get paid a base salary, with a variable incentive bonus that isn’t tied to commission.
In order to pay each of your employees fairly, you need to have an understanding of how each compensation package works and what mechanisms you can use in your payroll software of choice to build in those packages.
Select a Pay Period
Once you have your compensation structures decided on, the next step is to figure out how to schedule payments. The most important decision here is to select a pay period. Most companies use one pay period across their whole employee base in order to keep things simple.
As a typical rule, salaried employees are paid biweekly and hourly or daily-wage employees are paid on a weekly basis. Pick the right pay period that fits your business and industry. Generally speaking, employees want to be paid as frequently as possible. However, you need to find the right balance between keeping your employees happy and minimizing the amount of payroll work you need to do.
Withhold Taxes and Benefits
The next step is to withhold taxes and other sums dependent on the benefits that your employees have enrolled in. This will have to be done through software, but there is one thing that you’ll have to do before the software automates it.
That step is to gather all of the documentation required concerning your employees and the number of withholdings that they claim.
Outsource if Necessary
You should know that payroll outsourcing is always an option. For smaller companies that don’t have large finance or human resource teams, outsourcing could be a great way to keep costs down.
Paying a virtual team to manage your payroll a few hundred dollars a month can be far more cost-effective than onboarding and managing an employee to do the same.
Know Your Payroll Basics
There you have it — now that you know your payroll basics, you’re all ready to make the decision of whether you want to keep it in-house or outsource the job to a skilled payroll team.
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