How Do Companies Do Payroll?

Right at its core, payroll services lie in the foundation of showing appreciation to employees.

All employees have the right to get paid the amount equivalent of the work they do. With this, it is the responsibility of the employer to make sure that this is taken care of. Handling employee payroll can be done in a number of ways. You may do so manually, have an in-house staff, use a software, or even outsource it to a payroll service provider.

Every system may have different task requirements. For instance, if you are focused on direct deposit, you may not have to deal with direct deposit. This, however, may be required when using an in-house system. Regardless of the type of system that you implement to calculate payroll, there are certain principles which can be applied when doing so.

The process involving the calculation of payroll is one that is highly regimented. This calculation need to be meticulously followed in order to make sure that mistakes will be avoided, especially in calculating the net pay amount issued to employees, as well as the taxes paid.

Steps in Calculating Payroll

When it comes to calculating payroll, experts may have their own processes. However, there are general steps that are usually followed. This involves the following:

Employee Notification

This step involves telling the employees to make sure that their timesheets are completed towards the end of the business during the last day of the payroll period. Failure on the part of the employees to do so, or failure on the part to remind and pursue them will only result to a delay in the entire payroll procedure.

Collection of Timesheets

The timesheets should then be collected from all of your employees. This information may be be stored in a timekeeping system online.

Timesheet Review and Approval

After your employees have done their part in submitting their timesheets, it is now your job to review all of their timesheets, making sure that everything is complete. Afterwards, the timesheets can then be forwarded to the supervisors for approval. Among the items that need approval include overtime, since it is 50% more compared to the employees’ regular pay.

Enter Hours Worked

The information regarding the number of hours worked by employees should then be entered after being manually collected. Otherwise, this information may already be in the system, especially if you are using an advance payroll system in your business.

Enter Changes in Wage Rate

Afterwards, you can then enter all of the approved and authorized changes into the system for any alterations in wage rate. This also includes any deductions and withholdings. Most particularly, make sure that all of the deductions have been accurately entered for the adjustments on gross wages for taxes, since they have an impact on the amount of the paid payroll taxes.

Gross Pay Calculation

Gross pay can be calculated by multiplying the wage rates by the number of worked hours. Before starting to calculate payroll, it is important to know what the gross income of an employee is. Aside from this, make sure that you include any commission, overtime, or bonuses given to the employee during the pay period.

These pay periods may be monthly, weekly or bi-weekly. If you are considering a bi-weekly pay period, a full-time employee should be working for about 80 hours. On the other hand, a fixed salary employee will earn the same amount regardless of the number of hours they work.

Net Pay Calculation

Gross pay is different from net pay. Net pay can be calculated by deducting all of the authorized and approved withholdings, as well as pay deductions from the gross pay.

Review Information

Before submitting everything, it is very important to review all details entered. This may include printing a preliminary payroll register, examining the amount for the gross pay, net pay, and deductions for every employee, making sure that everything is correct. If there are some issues, revise previous entries, running another preliminary payroll register.

Paying Employees

The next step involves cutting of payroll checks, as well as remittance advices. Afterwards, print a final payroll register, archiving them next. An authorized person should sign the cheques after. As an alternative, start issuing electronic payments to your employees, or through any other approved payment methods.

Tax Remittance

Now that all of your employees have reserved their pay, you can now forward all applicable taxes to the government. Make sure that this should be done before the due date mandated.

Pay Distribution

If there were cheques cut, keep them in the safe of the company, distributing them on the payday. Before a check is handled to an employee, extra control may be needed, such as a proof of identification, or other personal processes that your company may implement.


It is the primarily responsibility of employers and business owners to calculate payroll accurately for the employees. Errors may result to a number of things. For one, the employees may end up having either too much or too little, causing an inconvenience come tax period. More consequences can be expected when miscalculations end up with the company coming under review, even facing some charges and penalties by the government.

While all of these things can be done manually if you only have a few employees under your care, it may consume too much time if you have more than 10 already. As a solution, you have the option to either use a payroll software to automatic transactions, potentially cutting the time spent on payroll calculation in half. Another possible option is by hiring an accountant or outsourcing payroll service provider to handle the tasks for you.

Regardless of the system that you put into use, there is no doubt that the calculation of payroll should be done in the most accurate way possible. As such, rather than trusting manual solutions, using automated systems or entrusting the process to the hands of an expert is a better decision that you can make as a business owner.

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