Payroll System Benefits

Every employee needs to be paid for the services he provides. For this to happen, the employer must have a payroll system in place. Without it, chaos occurs, as employees will become upset if their checks are inaccurate (or worse, if they don't get paid) due to a haphazard payroll structure. So obviously, there are benefits to be derived from using a payroll system. 1. o The Defintion A payroll system is the method used by payroll professionals to pay employees for their services. Regardless of the type of system used, there are basic functions that must be performed--calculation of hours worked, deductions (401k, health, garnishment), and benefits (auto allowance, vacation, personal time). Manual o A manual payroll system is typically used by small organizations. The primary benefit is that it's very inexpensive to set up and maintain. Businesses using this system do not have to invest in a software or spend money on training classes for the payroll processors. They can also establish their own payroll system instead of adhering to the rules of payroll software. They can log and maintain employee hours and tax records, according to how they see fit. Computerized o A computerized payroll system saves on time and lowers your error ratio. You can enter payroll payment information quicker than with a manual system, and run payroll registers to double-check your information before printing the checks. This allows you to detect errors and adjust them beforehand. Additionally, computerized payrolls simplify tax processing (941s and W-2s) by computing the data for you and allowing you to do bulk print runs. External o Many companies use an external payroll service, such as Paychex and ADP, to process their payroll for them. This eliminates the stress of processing it yourself. Outside services also offer direct deposit services, where employees' paychecks are electronically transported into their bank accounts. Additionally, companies using them do not have to invest money in an in-house payroll software. They do not have to spend the money on in-house processors. Choice o When choosing a payroll system for your company, select the one that benefits you most. Companies with fewer than 10 employees (especially if the hours or salaries tends to remain the same each pay period) generally benefit more from a manual system. For companies with 10 to 50 employees, purchasing a software package is advisable, as long the software is relatively simple to use. A large firm with 50 employees or more should go with an external payroll service. Structure o Once you've chosen the payroll system that works best for your company, you'll want to ensure that your payroll structure is organized and efficient. For manual payrolls, keep copies of all payroll information (copies of checks and types of payments made, including taxes). For computerized and external payroll systems, create various spreadsheets to document each payroll. Do not depend on the software only to maintain your payroll records, as they can malfunction, resulting in the loss of crucial payroll data. TheDisadvantagesofPayrollSystems 1. Employers have to ensure their employees and taxes are paid in an accurate and timely manner. Consequently, they use a payroll system that best suits their needs. Although payroll systems can provide payroll services that are advantageous to the employer and his employees, they also have disadvantages. Outsourced System When an employer outsources his payroll, he assigns a significant amount of the payroll processing tasks to a payroll supplier, decreasing the workload of his payroll department. This is an increasing popular method of payroll processing among employers, particularly among small businesses that lack an in-house payroll staff. The disadvantages of this system include the improbability of contacting a payroll professional immediately. If the payroll company is understaffed and has an abundance of clients, it may become difficult to reach someone when you need it immediately such as when paycheck discrepancies arise.

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Because the payroll company is located off-site, it is difficult to always know what's going on with your payroll until the actual pay date arrives. The payroll company is also responsible for paying your taxes to the government. If taxes are being paid late or incorrectly, unless you have a payroll administrator working on-site to stay abreast of tax filings, you may not know it in time to avoid penalties from the government. In-House Computerized System o An in-house computerized payroll system is equally as popular as an outsourced system. The employer simply purchases the payroll software and hires an in-house payroll staff to do the payroll processing. The disadvantages of this system include the employer having to pay salary and benefits to his payroll staff, as opposed to paying a small fee to outsource his payroll. The in-house computerized payroll staff generally has additional tasks such as quarterly and annual tax filings, W2 processing, direct deposits and payroll database maintenance. When glitches in the system occur, the payroll staff has to work overtime to help solve the problem, which can be costly to the employer. The stress level on the payroll staff can be considerable when payroll issues occur. Employees can approach the payroll person directly as opposed to having to rely on their superior to contact the off-site payroll supplier. In-House Manual System o Although in-house manual payroll systems are becoming increasingly rare, some small companies still use them. The main disadvantage of this system is that everything is done by hand. The payroll personnel must add all the hours stated on the employee timesheets using a calculator. Then it must verify the calculations. Thereafter, it has to determine the wages by hand and use the IRS withholding tax tables to determine the amount of taxes to withhold and pay. Check printing is done manually on a typewriter and all payroll errors are manually adjusted as well. The room for error with this payroll system is great; correcting these errors is an equally painstaking task. Payroll System Problem Statement The study specifically seeks to answer the following problems in manual payroll process: Speed in processing payroll tends to be slow. Prone to mathematical errors that could consume much time than it should and could cause financial or legal trouble. Tallying of time cards is done manually. Time consuming in double checking the consistency of all the reports. Difficult and time consuming in keeping up-to-date in taxes and other deductions. Storage of files is susceptible to be damaged as well as lost of data. Significance of Study Speed in processing payroll will have a faster performance by means of decreasing the manual input areas. Mathematical errors will be prevented by automatic computations that the proposed system will provide and you may not have to worry about having financial or legal trouble. Tallying of time cards will be done automatically by including a computerized employee log-in system in the proposed system which will be responsible in computing the time the employee worked. The proposed system will record all data in all reports at the same time so you can make sure they are consistent and it also saves time. Employers will never have to spend much time in keeping up to date with taxes and deductions because the system will be designed updated to such deductions. Storage of files will be safe and secured with username and passwords and can easily be accessed. Scope and Limitation After several interviews and observations, the researchers have come to identify how the payroll works. The aim of the research is to provide a specific school, Hillcrest Baptist Academy, a computerized payroll system. The proposed system will guide the employer through all the stages of the process.

The system can only do the following: Compute monthly net income, PAG-IBIG, Withholding Tax and other deductions Add, save, delete, and update... Background of the study Processing payroll can be one of the most complex tasks facing an organization. Aside from simply paying employees, companies will need to file taxes, submit reports and process year-end data for tax-reporting purposes. These problems are being encountered by several organizations. The manual payroll system they are currently using calculates the payroll for each pay period entirely on paper. They will need to calculate taxes, over time, under time and any other applicable deductions and additions to each employee s actual earnings. The problem with the manual payroll system is if ever one had committed mistakes, whatever input was made from the start will automatically affect the whole calculations, and it will probably consume...

Payroll software The advantages of payroll software The most obvious benefit of payroll software is that payroll calculations - such as tax and National Insurance deductions - can be completed in a fraction of the time that they would take to work out manually. Year-end reporting is also usually automated, and both payslips and annual reports are archived in case copies are needed later. Time recording Payroll systems can also incorporate, or integrate with, timesheet systems that record employee attendance or time worked. In this way, information about hours worked, whether collected automatically as a user or operator logs into a system, or manually entered into an electronic form, can be automatically transferred into the payroll system. Reporting Using basic payroll data, together with data on attendance and hours worked, payroll systems can provide a wealth of reports. This allows in-depth analysis of staff costs for the business as a whole, across departments and even individual jobs and contracts. Storing personnel records Most organisations will also keep other data about employees, such as records of annual leave. This type of information is usually associated with the broader human resources function. You can get payroll systems that will record these additional types of information, avoiding the need for a separate software package. Planning The ability of payroll packages to provide forecasts means you can plan staff costs and budgets by entering hypothetical numbers to see the exact total cost of an employee. Assess the business requirements for payroll software Not every business needs payroll software. If there are no complications, and if the business is relatively small, manual payroll calculations can be quite straightforward.

Bought software versus HM Revenue & Customs (HMRC) Basic PAYE Tools package Whether or not you need to buy software depends largely on the size of your business. If you only have a few employees, the cost of the software may outweigh the time you save using it, although computerisation provides less opportunity for error. Payroll software usually requires an annual subscription, in addition to the initial purchase cost, in order to obtain regular updates to tax and National Insurance rates, and information on changing legislation that can affect payroll calculations. HMRC now offers a basic calculator for tax and National Insurance contributions, and provides this free of charge to all employers. It is part of the Basic PAYE Tools package which you can download from the HMRC website. Although this cannot yet replace either a manual or computerised system completely, it can save time in producing payroll calculations and may be sufficient for some smaller businesses. Who will use the software? When choosing the best option for you, consider theexpertise available within your business. For example, who handles your payroll when the company accountant is absent? You may find it easier to train someone else to operate the basic payroll run if they have the benefit of a suitable software package, rather than having to carry out the calculations manually. What will happen if there's a problem? You should also consider business continuity. If you manage payroll using a computer, that computer will become business-critical. Therefore you will need to plan support, back-ups of data and disaster recovery plans. It is always possible to revert to a manual system if there is an emergency, but you should be aware that using payroll software makes you reliant on your computer system. Payroll software capabilities Payroll software can do many pay-related calculations. However, you will still need to input and maintain certain data for each of your employees. What payroll software can do Any payroll software will take over the routine calculation of ordinary payroll requirements such as tax and National Insurance contributions (NICs). It will also calculate the NICs that you have to pay as an employer. It will allow you to pay people at monthly or weekly intervals, as appropriate. Payroll software will also: calculate student loan and other deductions produce payslips for your employees produce payment reports to allow you to pay employees, showing the amount to be paid to each employee keep records of payments and deductions produce year-end reports and documentation for you and your employees produce the necessary figures or documentation when an employee leaves

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What payroll software can't do While payroll software will do automatic calculations for you, there will still be administrative work for you to do. In addition to inputting an employee's details when they start their employment, you will need to make changes when their rates of pay increase or decrease. You will also need to change tax codes when notifications are received. You may also need to enter details of hours worked and overtime. There are also many possible deductions from pay such as employer loans and pensions. Even if the software can automatically calculate some or all of these, you will still need to key in the details for each employee to whom they apply. This information will have to be updated when appropriate. Payroll software Payroll software operation Once computerised, the payroll function should be operated by someone with appropriate knowledge and training. The operator should understand the relevant accountancy practices and statutory requirements, especially if you plan to use manual operation in the event of a system failure. Back-up plans You need a back-up plan for when the usual operator is ill, on holiday or otherwise unavailable. Alternatively, you may want to consider making arrangements for your business' accountants to provide emergency cover. You should have back-up copies of the payroll data, ideally stored off-site with appropriate security, eg in a fireproof safe. You may find it practical for security and continuity purposes to run payroll software on a dedicated computer to avoid any disruption caused by failure of other software. Privacy You need to comply with the Data Protection Act 1998, even if your use of personal data does not require you to register with the Information Commissioner. You must keep only essential information - it should be kept securely for no longer than is necessary, in order to preserve confidentiality and prevent unauthorised access. See our guide on how to comply with data protection legislation. Access to payroll information should be controlled using appropriate passwords and, ideally, physical protection such as an office to which access is restricted. Similarly, you will need to safeguard paper-based information, such as payslips, by employing physical security. Trial runs and tests, such as a payroll reports, should be destroyed. Security There are additional security measures you may need to take. If possible, at least two people should be involved in managing the payroll process. Actual payments should only be made with appropriate authorisation.

Comprehensive, accurate and timely reporting can help to reveal any discrepancies, such as mistakes in inputting hours, rates of pay and other data. Payroll software Payroll software functionality Any payroll software will carry out basic calculations for pay, such as tax and National Insurance deductions. However, if you need to make other deductions you should check that any payroll software you use can handle these. Pay intervals Weekly and monthly pay intervals are standard, but if you have different requirements you should check that these are supported. You may also want to check whether the software can handle pension scheme administration. Multiple usage Smaller businesses may only require support for a single payroll operator at a time, but you should check that multiple user operation is available just in case you need it in future. Reporting Some basic end-of-year reports will be included as standard, but check that everything you need is supported. If necessary, look for a package that will calculate and prepare P11D forms and provide the relevant figures to give to employees to allow them to complete their tax returns. Most employers now have to file their PAYE end-of-year and in-year returns online (such as P60s). You should check that any software you purchase supports online filing (including P45 and P46). See our guides: introduction to Self Assessment and understanding and using PAYE online for employers. Data presentation All payroll software will tell you the amounts that need to be paid to employees and HM Revenue & Customs (HMRC), but check that this information can be used in a way that meets your requirements. For example, you may want the software to print payslips for you, or just to give you figures for electronic payment. Personnel records Additional features may include the calculation and recording of holiday entitlements, self-service to allow employees to request or book annual leave online, and tracking sick leave. In addition, some packages may be able to keep records such as job position history, previous employment history, education and academic qualifications, references, skills and competencies and training records. Integration Integration with the main accounting system to enable payroll costs to be automatically transferred is highly desirable. Expenses information is required to complete P11D forms, so it helps if the payroll system offers or integrates with expense reporting systems. If the system can record information regarding car administration, this can also help with the preparation of data used in completing P11Ds.

Reporting and analysis using payroll software At a minimum, payroll software must produce payslips. However, it is also useful if you can run pay and personnel-related reports. Payslips Before you acquire any software, check whether it can print onto normal stationery or whether a special size or pre-printed stationery is required, and if so, how much it costs. It usually makes more sense to print any necessary forms directly onto blank paper or labels if the quantities are small. It can also be useful to be able to reprint payslips in the event of a problem. Check whether the software needs special stationery for employee P60 forms at the tax year-end. Again, printing the form onto plain paper is often the better option. For more information on P60s. To ensure privacy, payslips should be printed on a printer that employees do not have access to. In some cases, you may prefer to use security stationery that cannot be read until opened by the recipient. If this is important, you should also check that the software is compatible with such stationery. Reports Payroll systems will provide information either on paper or electronically to update nominal ledgers, and a whole range of other reports are possible. Some will allow a high level of detail in the information passed to the ledgers, allowing accounting to distinguish between departments, managers and even individual jobs. Software can also report on compliance with National Minimum Wage legislation and, if time and attendance information is recorded, the Working Time Regulations. For more information on these, see our guides onunderstanding national minimum wage law andhours, rest breaks and the working week. If sickness and holidays are recorded in the payroll package, then these can readily be reported on too, together with other absences such as maternity, adoption and paternity leave. Choosing a payroll software supplier Payroll software is extremely complex and it is essential that you choose a dependable supplier. Check that the supplier is successful, financially viable and can provide excellent references. These factors should take precedence over the temptation to choose existing suppliers. HM Revenue & Customs (HMRC) accredited software Ensure that software is accredited under the HMRC Payroll Standard Accreditation Scheme. This scheme covers accreditation in: calculation of tax and National Insurance contributions electronic exchange of HMRC returns and payments customer service handling of statutory records, credits and deductions

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The Scheme is updated regularly and all software packages are tested annually to ensure that they remain compliant with current legislation. Find out about the Payroll Standard Accreditation Scheme on the HMRC website.

An alternative is to see our guide on using HMRC's Basic PAYE Tools. Electronic filing Most employers are now required to file end-of-year and in-year returns online. Electronic filing of HMRC returns and payments saves time and trouble. Suppliers should provide electronic filing for all forms that must be filed electronically. Costs and updates Whilst the purchase cost should be considered, most of the costs will be in operating, supporting and updating the software. You will have to pay an annual subscription for updates on rate and legislation changes. Check how much the subscription costs, and how and when updates will be made available. Find out how long the supplier continues to provide updates. Some suppliers only provide updates for a few years, so you need to upgrade to a newer version of the software. Some suppliers have experienced problems with updates introducing bugs that haven't been caught by testing. Check that when updates are applied, they can be rolled back in the event of any problems. Support Because of the critical nature of payroll operations, excellent support is a must. If a problem with the software occurs on payday, it must be resolved immediately. Check the levels of support offered by the supplier, in particular, the cost and response times. Payroll Software Advantages The Advantages Of Payroll Software

Are you an entrepreneur or small business owner looking for a quick fix to managing your businesses payroll requirements? Payroll software can be used to speed up the process of calculating pay, ensuring that payments are both accurate and on time. They save you the burden of learning and understanding complex payroll legislation. Trouble free payroll processing is a critical need of any business. Payroll software completes payroll calculations within a fraction of the time it would take to do them manually, whilst your payroll staff might not like it, it makes perfect sense if you are trying to run a business. Another huge advantage of running payroll software over a manual process is in the reporting, most systems allow, weekly, month and annually required reports to be run at the press of a button. Instead of shuffling through endless files let the software do the work. It possible with a lot of payroll software to integrate with your time sheet systems that record employee attendance or time worked. It a simple way for information about employee hours worked to be transferred into the payroll system removing yet another layer of manual processing. Some companies choose to operate a swipe card door system whilst many others operate on a system login basis. Payroll software also provides the capability of "what-if" calculations. This helps in forecasting and planning staff costs and budgets. Entering hypothetical numbers allow you to compare the exact total cost of an employee under different remuneration

scenarios. Some payroll systems also allow more personnel based data to be stored such as records of annual leave and sick leave. It is worth noting though that not every business will need payroll software though. If you operate a very small business with one or two employees then you may be better calculating the payroll itself. Then again there are a number of free payroll programs out there. The only issue with these can be the limited support if things do go wrong meaning that it would be best to learn how to calculate the payroll manually anyway. Just in case. There are a huge number of payroll software providers out there with any number of customised payroll solutions. From the very expensive to 100% free and everything in between. Before committing to anything as important as payroll software it s best that you talk with various suppliers to make sure that what they are offering will meet your exact requirements. Every worker remembers his or her first payday. Whether the check was big or small, there was a deep satisfaction in tearing open the envelope and seeing that dollar sign. Over the years, the checks may arrive with less fanfare, but always with a strong sense of pride. This is the nature of work; fair and timely compensation for a job well done. Payroll, at its most basic, is the process by which an employer pays an employee for work performed. If you own your own business, but don't have any employees, then you don't have to worry about payroll. But as soon as you hire your first worker, you have a responsibility to pay that employee on time and the correct amount. If employers fail in their payroll duties, their workers will be less motivated to fulfill their end of the bargain. They'll be less productive and suffer from low morale. And if you make a mistake on an employee's paycheck enough times, he'll probably quit. From the worker's perspective, payroll seems like a simple task. But there's more to it than just signing a check and delivering it to your desk. An employer must make sure that the proper taxes are withheld from each paycheck and that those funds are paid to the right government agency at the right time. Complicated tax forms must be filled out and filed on an annually, quarterly, sometimes even weekly basis. Missed deadlines and improper tax filings can result in steep fines and even jail time. Payroll duties can be a real burden on a small business owner. Instead of focusing on product development, customer service and other important business tasks, the boss is stuck in the back with a calculator and a stack of IRS forms. That's why all businesses, and especially small businesses without their own accountants, need a reliable, effective and easy-to-use payroll system. Sure, it's possible to handle payroll responsibilities with a pen, ledger sheet and calculator, but nowadays most business owners use either an outsourced payroll service or computerized payroll software. What are the features and functions of a good payroll system? What are the advantages and disadvantages of computer software versus a full-service payroll provider? And how do you choose the best system for your business? Keep reading to find out.

What is a Payroll System? A payroll system involves everything that has to do with the payment of employees and the filing of employment taxes. This includes keeping track of hours, calculating wages, withholding taxes and other deductions, printing and delivering checks and paying employment taxes to the government. The payroll system starts when a company hires its first employee. In the United States, every new employee must be reported to the state along with a completed W-4 tax form. The W-4 determines how many allowances the employee qualifies for when calculating the federal income tax that should be withheld from each check. Generally, the more dependents you have, the less income tax you have to pay. As an employer, the W-4 is the first of many forms that you must keep on file as part of your payroll system. In fact, the W-4 needs to be kept on file up to four years after the employee is fired or quits [source: Intuit]. You must also keep track of the employee's critical personal information, like the address to which checks are sent, or in the case of direct deposit, the bank information and account number where the money is wired. All of this information is highly sensitive, meaning that a good payroll system should also be very secure. Withholding and paying taxes is one of the most important responsibilities of the payroll system. In the United States, the following are the major withholdings required by the government: When an employer withholds taxes from a paycheck, he acts as the trustee for those funds until they are paid to the IRS, the Social Security Administration (SSA) or other government agency. To avoid confusing this money with profits or other business income, all withheld taxes must be held in a separate bank account or trust fund. In the case of Social Security and Medicare withholdings, when it's time to hand that money over to the government, the employer is required to match the employee's contributions. For example, if an employee is paying 6.2 percent of every check for Social Security, then the employer has to pay an equal 6.2 percent. In addition to matching Social Security and Medicare contributions, the employer has to pay federal and stateunemployment taxes (FUTA and SUTA) for each employee. The employer pays these taxes himself, meaning nothing is withheld from the paycheck. There are numerous other possible deductions, withholdings and contributions that can be subtracted from an employee's gross wages and that need to be tracked by the payroll system: y Health insurance or life insurance premiums y 401(k) or other retirement fund contributions y Workman's compensation y Union dues y Vacation days y Sick days y Employee loans y Court-ordered wage garnishments (for outstanding debts) y Child support payments

At the end of the year, an employer uses the payroll system to take all of the wage and withholding information from the previous year and summarize it on a W-2 form for full-time employees or a 1099 form for contract workers. Copies of that form must be sent to the employee, the IRS and the SSA. You can see how it might be difficult for a small business owner to keep track of all of these withholdings, pay all pertinent employment taxes and still mail the paychecks on time. That's why so many businesses use payroll services, which we'll talk about next. Payroll Services A payroll service is an outside company that specializes in every aspect of the payroll process. The first such service in the United States, Automated Payrolls, was founded in 1949 and relied on primitive technology like electro-mechanical calculators and something called the Comptometer bookkeeping machine [source: Reynolds]. Automated Payrolls grew to become Automated Data Processing (ADP), one of the largest business outsourcing services in the world. A basic payroll service will collect wage and hour information from the employer and use that information to calculate gross wages, subtract all pertinent withholdings and deductions, print checks, make direct deposits and prepare all employment tax filings. The service will also mail out W-2 and 1099 forms and resolve any inquiries from the IRS or other government agency. Some payroll services offer more comprehensive help. They can take over some of the responsibilities typically handled internally by human resources, like administrating a company's retirement accounts and benefits programs. They can file new employee forms with the state and help comply with any court-ordered wage garnishment programs. Some payroll services even offer a free phone help line for any questions related to human resources or payroll. The Internet has made payroll services even more convenient. In the past, an employer had to call the payroll service with information about wages and hours for the upcoming paychecks. Now the employer is provided with a Web-based payroll account that he can update 24/7. All he has to do is log on to the system, punch in the hours for the pay period and the data is updated in real time. Payroll services keep record of all payroll information and make all of this data available online through reports, payment histories and other features. The cost of payroll services depends on several factors, namely the number of employees, the number of pay periods every month, and the level of comprehensive service of the services required. If a company with 10 employees pays its workers twice a month, it can expect to pay around $50 each pay period, or $100 a month, for basic payroll services. The same company can pay up to $200 a month for upgraded services like online reporting, direct deposit and phone help. In general, costs are calculated per employee and per check [source:ADP]. The biggest advantage of a payroll service is that takes all payroll responsibilities away from the business owner, allowing him to focus on other aspects of running the business. The downside is that a payroll service can get expensive, especially as a company adds more and more employees. A good compromise between expensive payroll services and time-consuming manual bookkeeping is payroll software, which we'll talk more about in the next section.

How To Choose Payroll Systems: Manual, Software, External Processing payroll can be one of the most complex tasks facing an organization. Besides simply paying your employees, you will need to file taxes, submit reports and process year-end data for tax-reporting purposes. Choosing any kind of business system can be difficult, but getting a handle on your business plan can help; for that, I recommend Sample Business Plan. To determine the best payroll system for your company, consider the following points: 1. What types of payroll systems are available? There are three basic types of payroll systems. Manual payroll means that you, or another employee within your company, calculates the payroll each pay period entirely on paper. You will need to calculate taxes, insurance, 401K, and any other applicable deductions in addition to each employee's actual earnings. The advantage of using a manual system is that it is very inexpensive, with virtually no start-up costs. The disadvantage is that whatever you save on start-up costs will probably be eaten up by the amount of time it takes to process payroll. In addition, it's very easy to make mistakes when processing payroll manually, and the penalty for mistakes, especially mistakes in taxing, can be very costly. There are at least free payroll templates out there, but it still difficult to do manual payroll processing. y The second type of payroll system is computerized. Many companies offer computer software that will assist you in processing payroll. You will need to input information for each employee when he is hired, but after that, the software will calculate payroll taxes and other deductions automatically. Most programs will also process W-2 forms for each employee at year-end, which can be a real time-saver. The advantage of this type of payroll system are numerous - fewer potential mistakes and less time spent processing payroll. In addition, employees can be trained to run the program more easily, so you won't need to depend on just one person to process payroll. The disadvantages are that you still have to input each employee's hours manually, and the software has to be updated annually or whenever new tax laws go into effect. There can also be additional charges if the software has to be configured specifically for your business. y The final type of payroll system is to use an external payroll service. Companies such as ADP and Paychex will process your payroll for you, including submitting all necessary tax payments and generating year-end reports. Although this is the most expensive type of payroll system, it can pay for itself in larger companies, which might otherwise have to hire a full-time employee dedicated to processing payroll. A payroll service may also offer a direct-deposit option to your employees, which is very popular. When you are researching payroll services, check to see what services they offer, and if the reports that they provide to you are helpful. If not, see if they can customize their services to better suit your needs. Another important consideration is to find a payroll service that is bonded. This protects you from liability in the case of mishandled finances. Check with any potential payroll services to be certain that they will pay any applicable penalties if they make mistakes in remitting tax payments, and that they can re-process payroll quickly if there are mistakes. The main disadvantage to this system, besides the higher cost, is that security can be an issue if your payroll computer is on the same network as all of the other computers in your company. To avoid this, you should have a computer which is used only for payroll that can go online without using the same connection as your other computers. Also, keep in mind that you will still have to transmit employee payment information to the payroll service each pay period. How many employees do you have? If you have fewer than ten employees and their hours stay basically the same from one pay period to the next, or they are salaried, it may be relatively easy to process payroll manually. If your company has between ten and fifty employees, a payroll software package may work well for you, as long as there are relatively few complex issues involved. If your company is large - fifty employees or more - you'll either want to hire an outside payroll service, or hire an employee strictly to process payroll.Payroll companies vary in the services they offer and the amount the cost - do your research to find the right payroll company for you. What accounting software do you use? If your current accounting software includes a payroll processing system, you may want to use it, because you can then integrate all of your financial information into one package. When you consider this, think about how well the program meets your needs, and if it can be adapted to meet your future needs.

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How complex is your payroll? If your payroll is quite complex - for example, if you have many employees at different pay rates, and on different pay scales, possibly even with different insurance packages from which to choose, you may spend a lot of time processing payroll, and on trying to keep up with changes. Such a task may be better suited to an external payroll service. However, be certain that you understand what is included in your basic fee, and what is considered extra. Some companies include only the minimally necessary steps in processing payroll, and everything else is an extra charge. The best way to avoid this problem is to assemble a typical payroll for your company, then ask any potential payroll services to quote the job.

The key to determining an ideal payroll solution for your business is to be realistic about how much time and money you can devote to this task. Also, consider whether or not you have an employee in your accounting or human resources department with the knowledge and time to dedicate to payroll. If a payroll system isn't working for you, don't feel tied to it just because that's the way it's always been done. It may take a few tries to find a great fit! Good luck in finding the best payroll system for your company! The Advantages of Traditional Payroll Systems Small businesses have a number of options available when deciding on the best method for issuing payroll checks. The small business owner with only a couple of employees may think that manually preparing payroll is the best route to save money, especially because the cost of using a payroll service may be out of the owner s price range; however, small business owners can benefit from using a moderately priced traditional payroll system to prepare business payroll. Cost A traditional payroll system for a small business is usually considerably cheaper than contracting payroll preparation out to a payroll service, and can often be cheaper than manual preparation of payroll due to savings achieved through a reduction of payroll errors, and the knowledge level and time required for an employee to manually prepare payroll. With a basic amount of understanding, clerical staff can learn to use a payroll system and the business saves the cost of hiring a payroll professional. Because a payroll system calculates withholding taxes for you, it eliminates mistakes made in tax filings, eliminating penalties and interest often charged for filing errors. Automatic Withholding Calculations You add new employees to a traditional payroll system by adding information about the employee, such as name, address and all information from the Form W-4, in which the employee designates his filing type and number of exemptions. The payroll system comes preloaded with the Internal Revenue Service payroll deduction tables that supply the deduction rates for Social Security, Medicare/Medicaid, federal tax withholdings and federal unemployment tax. Using a combination of the employee information and the provided tax tables, the system will automatically calculate all payroll deductions and apply them to the gross pay before issuing a check for payroll. Spending hours manually calculating payroll withholdings, and risking a calculation error are a thing of the past with a traditional payroll system. Tax Compliance Payroll system software developers will provide annual updates to the tax tables as the IRS changes withholding amounts. The updates are easily installed into the payroll software and ready for use at the appropriate date, completely eliminating the need to keep up with changes in tax rate tables and deduction rates and limits. By providing you with regular updates, payroll system developers help you maintain tax compliance by assuring your payroll deductions are always calculated using the required rates. Payroll systems also calculate the amount of employer tax due to the IRS and to the state, if you pay state unemployment in addition to federal unemployment. You can generate reports that provide you with the exact information needed to fill out federal and state forms for payroll tax remittance, and in some cases, the payroll system may generate the forms for you. Time Off Tracking A payroll system can track vacation, sick and holiday pay, as well as accrue vacation and sick time based on the accrual settings you provide. This eliminates manual tracking of paid time off and mistakes that can be made with manual tracking.

About Payroll Systems A payroll system provides an employer with the medium needed to process its payroll. This includes meeting the U.S. Department of Labor s wage and hour and record-keeping standards. Additionally, the system enables the employer to satisfy the Internal Revenue Service s payroll tax criteria.

Types Payroll systems include manual, in-house computerized and external/outsourced systems. A manual system means that the payroll representative completes the payroll by hand. An in-house computerized system means that she uses payroll software to process the payroll. An external system means that the employer pays a payroll service to process its payroll.

Establishment The manual system is the least expensive to establish. Typically, all the employer needs are stationary, blank checks, which can be handwritten or typed on a typewriter, and a calculator to manually process its payroll. Because of its high room for error, this system is recommended only if the payroll is small. If the employer wants to make payroll processing easier but has a small payroll, it can hire one payroll representative and buy payroll software, such as QuickBooks or PenSoft, frequently used among small businesses. However, if the payroll is large, such as one with multiple pay frequencies and multi-state processing, the employer would need to invest in more complex software, such as Ultipro. Additionally, it may need more than one payroll representative. With regard to the external system, once the employer locates a payroll service provider, it needs to sign the required contracts, which should include a description of the provider s services. If the latter will be handling the employer s payroll tax and/or benefits affairs, the employer also needs to give it power-of-attorney. Power-of-attorney gives the payroll service the legal authority to report (and solve matters relating to) its client's payroll tax liabilities and employee benefit plans to the appropriate institutions. Furthermore, for direct deposit purposes, it needs to give the payroll provider its bank account information.

Payroll Processing The manual system requires manually computing hourly and salaried workers pay, statutory deductions, such as payroll taxes and wage garnishments, and voluntary deductions, such as retirement and health benefits. The in-house computerized system eliminates all manual processing. Payroll software computes wages and deductions based on the representative s input. The software also has direct deposit capabilities. Additionally, it has the federal and state withholding tax tables hard-coded in the system. The software company updates the tax tables as the withholding rates change, which is usually yearly. The external system employs a payroll staff that performs all calculations, and generates paychecks and pay stubs for the employer. All the employer has to do is send in the payroll hours via telephone, fax, email or mail.

Record-Keeping Compliance The U.S. Department of Labor requires payroll records to be maintained for a minimum of three years. The IRS requires employment tax records to be maintained for a minimum of four years. The employer can file hard copy data in storage boxes with the manual system while the in-house-computerized system stores the data in the payroll software; most payroll providers allow their clients to access payroll reports online.

Misconceptions The employer may believe that using a payroll service provider relieves it of all penalties caused by the latter. According to the IRS, the employer is responsible for all fees and penalties, even if a third party made the error. The Disadvantages of a Payroll System A distinct advantage of a payroll system is that it allows the employer to process its payroll and comply with payroll tax and recordkeeping laws. The payroll system can be manual, outsourced or in-house computerized. Each system enables payroll compliance, but each also has its disadvantages. Manual The manual payroll system requires payroll processing to be done completely by hand. Therefore, time card, wages and payroll tax computations; wage garnishments; and voluntary deductions are done manually. Furthermore, paychecks and pay stubs are handwritten or printed on a typewriter. The main disadvantage with this system is its high room for error. The more manual computations the payroll representative has to make, the more errors she’s prone to make. Furthermore, it’s timeconsuming because to ensure the payroll is accurate, she has to triple-check the data before printing checks. Even then, it’s possible to miss errors. Paper filing is required with this system, which can create clutter. Furthermore, if the payroll representative does not understand how to calculate payroll taxes manually, erroneous tax withholding, reporting and payment occur. This can result in penalties from federal and state tax agencies. Outsourced/External The employer uses the outsourced or external payroll system when it hires a payroll service provider. The latter has a payroll staff that, for a flat fee, processes its clients’ payroll. Services vary by provider, but most payroll service providers perform paycheck and direct deposit processing. Many also offer payroll tax and benefits administration. Because the employer is entrusting its payroll tasks to an off-site company, it can suffer from not having immediate help when needed. If the payroll service provider has many clients, the employer may have to wait in line to get any problems resolved. Depending on the urgency of the situation, this can be frustrating to the employer. Furthermore, according to the Internal Revenue Service, if the payroll service provider makes a tax error, the employer alone incurs the penalty. With the payroll being processed off-site, if there’s a problem with it, the employer may not know about it until payday. On-Site Computerized The in-house computerized system enables the employer to use an on-site payroll staff and payroll software to process its payroll. The employer must invest in and maintain the software, which can be expensive. Depending on the complexity of the software, the employer may have to pay for training for the payroll staff. Furthermore, depending on the size of the payroll, the employer may have to employ a full payroll staff. This system can prove expensive in that may require the employer to pay salaries and benefits to the payroll staff, plus pay for technical support when software glitches occur. The employer has to also pay overtime (if worked) to payroll personnel who qualify for it. Comparison of Payroll Systems

The U.S. Department of Labor (DOL) requires employers to abide by certain wage and hour laws. Furthermore, the Internal Revenue Service (IRS) requires employers to comply with its federal payroll tax withholding laws. The payroll system helps the employer to abide by these regulations. Significance It is impossible for the employer company to process its payroll without a payroll system in place. Regardless of payroll size, the employer needs a system that enables it to pay its workers on time. The system must allow for payroll tax, such as federal income tax, Social Security tax and Medicare tax, withholding.

Types Payroll departments perform the manual payroll system strictly by hand. Employers with very few employees can use this system. The in-house computerized system uses software to process the payroll. The employer can use this system to simplify the payroll procedure. For a flat fee, the outsourced system allows and necessitates the employer to entrust its payroll to a payroll service provider. Benefits The manual payroll system is inexpensive to establish. All that s required is a calculator for time card and wage and deductions calculations, blank payroll checks, a word processor to print the paychecks (if desired), and stationery. The in-house computerized system eliminates manual processing. The software calculates wages and deductions and reduces the likelihood of errors. The outsourced system relieves the employer of payroll duties altogether. Many payroll services offer complete payroll processing, including tax and benefits administration. Plus, the service usually does not have a limit to how many employees it processes for a single client. Disadvantages The manual payroll system increases the risk of payroll errors. It is not efficient for larger payrolls because of manual processing. Even for a small payroll, the likelihood of errors exists, due to dependence on human calculations. To reduce errors, the payroll representative must check the payroll multiple times before issuing paychecks, which is time consuming. It also does not enable direct deposit an electronic and convenient method of paying employees. Paper checks increase the likelihood of stolen and counterfeit checks. The in-house computerized system requires the employer to buy payroll software and pay an on-site payroll staff, which can be expensive, especially for a large payroll staff. If the software is complex, the employer may have to pay for additional training to the staff. . Since the payroll service provider operates from an off-site location it may be difficult for the employer to get immediate help when needed. Furthermore, if the payroll service makes payroll tax errors, the employer gets penalized, not the payroll provider. Considerations Each business owner must assess his needs carefully before choosing a payroll system. If he doesn t want to pay salaries and benefits to an on-site payroll staff, it s best to outsource the payroll. But if he feels more comfortable having an on-site staff, depending on the size of the payroll, he should decide between the manual or in-house computerized system. What are the Benefits of Automating a Payroll System? An automated payroll system enables the employer to process its payroll through a computerized system. A manual payroll system requires that the payroll be processed by hand and is therefore a considerably slower procedure than an automated system. The former makes payroll processing simpler, and reduces errors, which are more likely with the manual system. Time-keeping Transportation Hourly workers are paid according to hours worked during the pay period. The employer uses a time-keeping system to track hours and pay hourly employees accordingly. It is critical, therefore, that each employee’s time is computed accurately. Many employers use a time clock to track work hours. A manual payroll system requires computing the time clock data by hand; this increases the likelihood of mistakes. The automated time-keeping system allows the employer to import time clock data into payroll software. Specifically, the employee uses a swipe card or badge, or the hand print or fingerprint method, to clock in and out. Once the entries are transported into the payroll software, the software computes the time worked. All the payroll staff member has to do is ensure the time is transported appropriately and make the necessary edits. Payment Calculation The automated payroll system uses payroll software to compute all wages. Payroll software, such as QuickBooks, PenSoft, Z-Pay, Ultipro and Sage Peachtree calculate gross-to-net earnings based on the data the payroll representative inputs. Therefore, the result depends on the accuracy of the input. Thus, if a terminated employee is due severance pay but the payroll representative neglects to make the entry, the system will not pay it. Typically, the system is reliable so long as the entries are correct. The automated system performs all types of payments: hourly, overtime, double-time, salaries, commissions, bonuses, pay raises, retroactive pay, wage deductions, auto payments and tuition reimbursements. Notably, the automated system eliminates manual paycheck writing. The system automatically generates paychecks and stubs and enables direct deposit.

Deduction Calculation Salary and wage deductions are a necessary part of payroll processing. The employer must take mandatory withholding from employee paychecks, including federal income tax, Social Security tax, Medicare tax and usually state income tax. These taxes can be time-consuming and perplexing to compute manually. A number of rules are attached to withholding tax calculations. With an automated payroll system, the software has the tax rates hard-coded in the system. It calculates the withholding tax for each employee based on the withholding conditions data input. This reduces the likelihood of payroll tax errors, which can result in fees from the IRS and the state taxation agency. Record-keeping The IRS requires employers to keep employment tax records for a minimum of four years. Furthermore, the U.S. Department of Labor requires payroll records to be kept for at least three years. The manual system requires filing the necessary payroll data by hand, which consumes time and increases clutter. Payroll software generates and stores payroll and employment tax data. The Significance of a Payroll System

Employees usually represent the largest expense in companies. Business owners usually spend copious amounts of time hiring, training and maintaining sufficient employment for their business operations. The payroll system represents an accounting or finance function business owners use to pay employees for their labor. Payroll systems can be internal or external, depending on the business owner’s knowledge and experience. Facts Payroll systems often involve several moving parts in a company. Business owners must follow federal, state and local laws when hiring employees, offering compensation and withholding payroll taxes, deductions or garnishments. Small business owners can use professional accounting software to help them maintain payroll information. Most accounting software packages offer customizable payroll modules that help business owners keep accurate records regarding employee information. Features Small businesses usually run their payroll systems similar to larger organizations. Payroll systems outline when the company will pay employees (weekly, biweekly, monthly), the use of manual checks or direct deposit, benefit deductions from paychecks and the work requirements for salary or overtime employees. Business owners develop policies regarding these issues to ensure employees understand the company’s payroll process. Payroll systems allow business owners to create a function that is easy for them to understand and use. Function Business owners use payroll systems to save time and create structure in business operations. Payroll systems save time because business owners can repeat payroll tasks in a timely manner as needed. Structure is also important in payroll due to the legal liabilities involved with employee payroll. Small businesses can face payroll audits from government agencies. Business owners must present employee information and payroll documents to verify the business owner is following government requirements when paying employees. Considerations Outsourcing payroll is a common activity in small business. Business owners can avoid setting up a payroll system by using a temporary employment agency or third party payroll processor. Temporary employment agencies usually handle all payroll issues for employees. Business owners simply pay a fixed hourly dollar amount to the employment agency for these individuals, similar to other business expenses. Payroll processors require business owners to provide information relating to employee payroll. The processor will cut payroll checks and withhold taxes according to federal and state laws Expert Insight Business owners should consider consulting with a public accounting firm or an attorney when setting up their payroll system. These professionals usually have specific expertise and experience with payroll systems. Business owners can limit their legal liability to employee lawsuits by using professionals to conduct an internal payroll audit. An internal audit helps business owners discover if any issues exist in the payroll system and how to best correct the problems.

Uses of a Payroll System

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The payroll system allows you to process your payroll.

An employer uses a payroll system to process its payroll. The system allows the payroll representative to process the tasks necessary to ensure accurate and timely paychecks for employees. The payroll system can be in-house and computerized, in-house and manual or outsourced; the employer uses the one that best matches its needs.

2. Timekeeping
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Timekeeping is an essential aspect of payroll, particularly if hourly employees are present. The payroll system enables the employer to process timekeeping data for each applicable employee. If the system is manual, the payroll representative figures the time by hand. This includes adding up the hours worked as shown on the time card or timesheet. A computerized timekeeping system can transport the time into the in-house computerized payroll system, which includes the use of payroll software. If the payroll system is outsourced, the employer sends the time information to the payroll service provider to handle the payroll duties.

Payroll Processing
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Payroll processing includes performing many tasks, which may vary by employer. For instance, a payroll of five employees may not include processing salary wages and direct deposit, but a payroll of one hundred employees might. Regardless of the tasks involved, the payroll system ensures that they get processed. Payroll processing tasks can include computing hourly pay; salaries; pay raises; wage deductions; commissions; payroll taxes; wage garnishments; and voluntary deductions, such as health benefits, parking fees and retirement benefits. Furthermore, it can include ensuring new hires and terminations are appropriately processed. A manual payroll system uses payroll department employees who process these tasks manually. The in-house computerized system processes them with payroll software. The outsourced system uses the payroll service provider to handle payroll processing.

Tax and Reporting Compliance

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The payroll system enables the employer to comply with mandatory payroll tax and record-keeping policies. The Internal Revenue Service requires the employer to withhold and pay employee federal income tax, Social Security tax and Medicare tax. Most states require state income tax withholding. The U.S. Department of Labor has payroll record-keeping criteria: payroll records should be kept for a minimum of three years, and those that determine wages--such as timekeeping data--should be maintained for no less than two years. The payroll system enables the compliance of these requirements. In a manual system, payroll department employees figure payroll taxes manually. The in-house computerized system uses payroll software to figure the tax. The payroll service provider computes the tax if the payroll is outsourced. The employer stores payroll data via hard copies in a confidential storage area if it uses the manual system. The in-house computerized system allows the employer to store the data in the payroll software. The payroll service provider sends the employer payroll reports for each payroll that it processes for the employer. Many payroll services have an online service that allows the employer to access the necessary reports.