Description of a Payroll System
To protect the rights of wage earners, the U.S. Department of Labor notes that employers must compensate employees for time worked accordingly. To comply with this regulation, employers implement a payroll system.
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Significance
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The employer performs payroll processing to provide employee paychecks and comply with payroll laws. The payroll system is the medium used to handle this process. Specifically, payroll processing cannot occur without a payroll system. The employer can choose whichever system he prefers.
Types
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The payroll system can be manual, in-house computerized or outsourced. The manual system requires payroll processing entirely by hand. In-house computerized includes the use of payroll software and an on-site payroll individual to process the payroll. The outsourced (external) system is when the employer hires a payroll service provider to handle the payroll.
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Tasks
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Different systems require different types of tasks, which vary by employer. A manual system requires wage, deductions and tax calculations by hand. However, a computerized system uses payroll software to handle these tasks, based on the data the payroll staff inputs.
Payroll processing duties may include computing time sheets/time cards; pay adjustments such as pay increases and wage deductions; payroll tax and voluntary deduction changes; vacation, personal and sick time processing; salary payments; bonuses; overtime pay processing; paycheck/pay stub printing; direct deposit processing; and record-keeping.
Selection
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The employer should choose the payroll system that works best for the company. For instance, if the business has fewer than 10 employees, the employer can assign one person to process the payroll manually, or just do it herself. Furthermore, to eliminate the errors that can result from a manual system, the employer can invest in payroll software designed for small businesses, such as QuickBooks or Sage Peachtree.
If the payroll is substantial, particularly if it includes many pay cycles and/or multi-state payrolls, the employer can hire a full payroll staff and invest in an in-house computerized system, such as Ultipro, designed to handle such volume. If the employer would rather not deal with any payroll tasks, it can outsource the entire payroll, regardless of volume.
Considerations
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An effective payroll system is necessary for accurate and timely paychecks to occur. If the system does not suit the employer’s needs, payroll errors occur. For instance, if the employer has one payroll person who processes payroll for thousands of employees, this system is likely to be ineffective. Outsourcing the payroll to a payroll service provider or implementing a well-staffed, in-house computerized system would be a better solution.
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References
Resources
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