Unless you’re working in payroll yourself, you’ll probably have wondered on the odd occasion what the payroll department does all day long. After all, payroll is usually only processed once a month, and off-cycle payments surely can’t be that time-consuming.
As we’ve seen in an earlier chapter in the Lano Academy, payroll can either be under the umbrella of HR or Finance, or be a completely separate department. Regardless of where payroll sits within an organization, it always has the same role and responsibilities.
So, what are the different tasks the payroll function has to handle? What are the different payroll functions and procedures?
When people think about payroll, they often think about the calculation of gross pay and net pay. Calculating employee wages and salaries while taking into account all the different payroll components is the core part of the payroll process and therefore also one of the most important payroll functions. But the responsibilities of the payroll department don’t stop with the actual payroll calculations. Once the calculations are wrapped up, the payroll team also needs to issue the actual payments to make sure funds hit the employees’ bank accounts.
Along with the calculation of employee pay, the payroll function also needs to prepare and distribute payslips. Providing employees with a payslip is a legal requirement in many countries. There usually are certain rules and regulations as to which information must be included in an employee’s payslip, which means the payroll department needs to be extra careful to include all the necessary information regarding pay elements, tax deductions, and more. Nowadays, payslips can either be distributed in paper form or electronically.
Determining how much income tax, social security levies and other payroll taxes need to be deducted from an employee’s salary is the key part of the calculation that leads from gross to net. Administering payroll taxes (i.e. income tax, social security contributions, and other statutory payroll deductions) is another critical function of the payroll department. It not only includes the calculation and deduction of said taxes from employee salaries and wages, but also their remittance to the respective authorities as well as the submission of the necessary declarations.
The payroll function is also largely involved in an organization’s compliance management. It’s the payroll department that has the necessary competence and knowledge to ensure the business complies with federal, state and local tax laws as well as with all the regulations regarding employee compensation. Further aspects of payroll compliance include statutory payroll reporting and compliance with data protection standards such as GDPR.
The payroll function processes and generates an incredible amount of data. The administration and processing of payroll data is hence another important task in the payroll management process. Before the calculation of wages and salaries can begin, the payroll team needs to verify and validate the data input, such as hours worked and overtime. After the actual payroll process, the generated payroll data needs to be reconciled with the business’s accounting system and, ideally, also be structured and made available to other departments for the purpose of analysis and workforce planning.
The last payroll department function we’ll take a closer look at is record keeping. Once payroll is calculated, the payment instructions have been generated, and all employees have received their payslip for the respective pay period, the payroll department can move on to its final task, which is record keeping. Record keeping in payroll means saving and storing all the pay-related documents, files and reports. Payroll records are subject to strict regulations that outline which files and information need to be kept for each employee.
The Lano Academy is for informational purposes only and should not be construed as legal advice. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this article.
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