How Does A Payroll Software Operate?

Imagine how important it is to have a system that could manage all the payroll operations! The term payroll has different meanings. Many of us perceive it as the number of employees registered with an organisation who get paid. Some call it the amount employers pay to their workforce for working. Another meaning attached to payroll is the process of calculating, managing, and distributing employee salaries. 

Here, in this blog we will talk about the third meaning of the term payroll, that is, the complete procedure wherein the wages of the employees gets calculated and administered by the concerned HR professionals. But the main focus will be on the functioning of a modern payroll software and how it is important to the employees of an organisation. 

So, the blog throws light on the following 3 topics:

• The process of payroll management
• 3 stages in which payroll system works
• The importance of payroll software

What is the process of payroll management?

From keeping track of working hours and calculating wages to withholding taxes and other deductions, the process of payroll management takes care of everything related to paying the employees and filing their employment taxes. For a long period of time, this process was managed manually. But with the advent of technology, now a payroll software is used to control and manage such cumbersome operations.

3 stages of payroll system operation

The entire payroll process can be split into three main stages namely,

1. Pre-payroll activities

Before starting with the procedure, there are a couple of activities performed beforehand as a preparation for the payroll processing. This includes the following set of functions:

• Delineating payroll policies: Before starting with the main process, make sure to set up company policies such as leave and attendance policy, pay policy, and benefits policy in the beginning period only.
• Gathering requirements & inputs: Talk to HR managers, CXOs, add employees who have expertise and access to payroll information. With the proper interaction, you can learn about preferences, make changes and improvise the system to suit the users.
• Validating the inputs: The last pre-payroll activity is to input the collected data and check its adherence to the company policies. This is the step to validate that there are no discrepancies in the information of the active employee base.

2. Payroll calculations

Now comes the tricky part that involves the actual payroll process! Seamlessly integrating with the time and attendance management software, the system calculates the total number of paid days. Thereafter, clubbing the employees information related to monthly salary and tax deductions, the system calculates the final payout.

To maintain accuracy, an automated algorithm runs to detect and rectify any possible errors. Thus, with the help of a top-notch payroll management software, employees can take home a fair share of salary at the end of every month.

3. Post-payroll process

Once the math is done, there are certain activities to be performed by the payroll system, for example:

• Statutory compliance: Payroll software these days helps to maintain statutory compliance with the help of auto-update function to align the payroll as per the latest government norms and applicable laws and policies. 
• Payroll accounting: All the financial transactions for the payroll process are safely maintained by keeping a record of the same. The salary and reimbursement data is entered accurately into the organization’s accounting or ERP system.
• Salary distribution: Employees are paid out through cash, cheque, or bank transfer. Though transferring salaries via bank account transfer is the most common practice. For this, details like Employee ID, account holder’s name, bank account details, and amount of wages need to be present in the system. Only then the payroll software will be able to to auto-process the salaries and publish the respective payslips.
• Reporting: After completing the payroll process for a particular month the HR or the Admin professional dealing with payroll ask for related information. A book of payroll reports is then maintained to be analysed later for strategic decision-making and business forecasting purposes.

Why is payroll software important?

There are numerous reasons why payroll software holds great importance in an organisation. Some of the benefits include:

• Boosting employee morale
• Benefits and compensation administration
• Paying taxes on time
• Maintaining company reputation
• Government reporting
• Abiding by the labor laws

So choose your reason for incorporating a payroll management software into your company now and enjoy the benefits like never before.