What Is a Payroll System?

On the surface, payroll may seem to be simply paying employees' wages. However, it is a much more complex task. For this reason, many employers hire payroll professionals to handle payroll processing. Employers must also implement a payroll system so the employees and all necessary payroll taxes are paid accurately and timely. The three most commonly used payroll systems are manual, computerized and external.

Manual Payroll

The manual payroll system is an inexpensive method of performing the payroll process. Hours worked, taxes and voluntary deductions, such as 401k and health benefits, are calculated by hand. Checks are manually typed, increasing the potential for errors. There are no computerized payroll reports available, so the employer has to create his own report system. Though the start-up cost for a manual payroll system is low, the consequences can be great. Errors in tax computation can also occur as a result.

Computerized Payroll

With a computerized payroll system, the employer invests in a computerized payroll software. Using a software such as Quickbooks allows the employer to enter the wages into the system after he has manually calculated them. The payroll and check printing are processed through the system. The employer has access to payroll reports that she can print and use to double-check against what she has entered before printing the checks. This allows her to correct any detectable errors beforehand.

External Payroll

Several employees opt for an external payroll system where the payroll is outsourced to a payroll company. The payroll company is responsible for processing the entire payroll for its clients. This includes paying all wages and taxes. Checks are usually sent via courier (Fedex, UPS) to the client. The employer relays all payroll errors to the payroll company, who is responsible for correcting them. In utilizing this method, the employer cuts salary and benefits costs, which he would have had to pay if he hired an in-house payroll staff.

Company Size

Depending on the size of the company, the employer can choose either the manual, computerized or external payroll system. For employers with fewer than 10 employees whose wages tend to remain the same each pay period, a manual system might work best. Companies with 10 to 50 employees can often benefit more from computerized payroll if the payroll is not complex. Larger companies with 50 or more employees generally opt for an external payroll service, or hiring in-house payroll professionals.

Payroll Complexity

If the payroll is rather complex, such as multiple pay periods and pay rates, an external payroll service is recommended. Such services or companies are trained to handle the high-pressure environment that accompanies with such payrolls.

References

• Payroll System
• Ways to Do Payroll