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What is Payroll Processing? & How to set up a Payroll System?

What is Payroll Processing? & How to set up a Payroll System?

What is Payroll Processing? & How to set up a Payroll System?

Payroll Processing means to manage the payment of wages of a company to its respective employees. Usually a mid to large scale company or a corporation has a large number of employees who do a number of different jobs. The wages offered to each employee are usually different. Some work on regular salaries, while others work on contract basis. Moreover, there are the matters of benefits involved, such as bonuses and monetary incentives offered to by the companies to keep their employees happy and motivated. Sometimes deductions are to be cut from the regular wages for insurance or retirement packages, or just for the leaves of absence. Companies usually use either a payroll software or employ a third-party payroll processing services for the job.

Steps for Payroll Processing

Superficially this procedure of payroll processing seems simple enough, but it involves a number of steps which must be carefully taken to ensure no errors may take place in the process. Following is a brief overview of the steps taken to set up a new system for payroll processing.

Employer Setup

The terminology ‘Employer’ can mean two different things depending on circumstances.
I) Firstly, it could refer to a company in a database that processes its own payroll through a personally deployed system and issues its own payroll reports to tax agencies and other relevant parties. Some companies who have multiple entities for which to process payroll set up multiple companies for a single employer. Although, it is much more common for each company to act as a separate employer.
II) Secondly, it can refer to a collection of companies in a system that process payroll but are also part of the same payroll processing entity in its entirety. Payroll information is garnered at the employer level. For instance, an employee who works in two different companies with the same database can possibly receive one W-2 form.

Choice of Agency

Once it has been appropriately decided what the best option is to set up the employer structure, the next step will be choosing the federal, state and local tax agencies for each company. It is important to submit your company’s Federal Tax Identity number during this step. That information will be used on the W2 forms and other similar tax reports.

Worker’s Compensation Codes

During the setting up of tax details, you may set up workers’ compensation class codes. To properly govern which workers’ compensation class your company should choose, you must Contact Your Accountant, or other related legal professionals who are knowledgeable about your company’s inner workings. As far as the unemployment is concerned, each employer is dispensed its own unemployment rate, which is usually provided by the state as it is their responsibility.

Minimum Wage and Overtime Setup

Employer setup involves telling the payroll system such things as how many regular hours are in a week and how long a break is in a day etc. The employer could set up a minimum wage information that relates to their business. They may contact their accountant in case of any unsurety. Determinination of how overtime is calculated must also be done, as it is one of the most essential things. It must be determined in regards with different time constraints, such as for a day or a week, and entered into the
system setup.

Earnings, Benefits, Deductions

Next is the setting up of the earnings, deductions and benefits your company offers to its employees for the respective actions. It tells the system different types of earnings codes you have available for all of the employees which are classified by hourly, salaried, piece work, bonus pay, overtime etc. Deductions or benefits codes define the benefits your company offers and other deductions for things like child support, insurance, etc. and how they are calculated, which will be used to calculate them for each employee.

Adding Employees to the System

After you have set up an employer within the payroll system, at this stage you are ready to begin adding employees. This includes each employee’s personal information, social security number, name, address information, and any optional information your company chooses to track for each employee. You must then choose pay information and define how each employee is to be paid. Such as weekly, bi-weekly, monthly or on contract basis etc. Tax information and workers’ compensation class codes are chosen which are specific to each employee so as to avoid mixing information up. Lastly, the employee is set up for the method that will be used to pay them, such as a direct deposit, a printed check, a pay card or a combination of all three, depending on their choices or preferences.

Tax Filing

Where payroll is concerned, paying employees is the task with optimum priority. Nevertheless, filing of the payroll taxes carries its own measure of importance. It is necessary that filings of payroll taxes be accurate and filed on time. Otherwise the employer will suffer through expensive penalties. There are a number of ways for tax filing while ensuring an efficient process. Some companies choose to use an external and independent payroll service. In such a case the filing is completely done for them. The burden of remembering to file on time is taken off of their shoulders. However, if filing is done internally, the employer may choose to purchase forms themselves. They may choose to print on the forms directly or simply print the forms on plain paper, if the payroll system allows. Some systems also allow for online payroll tax filing. Recently it has been becoming a requirement in many states.

Once payroll processing companies are fully set up, the job of processing payroll becomes a rather straightforward process. The process itself varies accordingly among respective software systems and services. The core of payroll processing involves collection of time information for employees, selection of employees to be paid and printing checks or distributing direct deposit payments in their respective methods.

SG Inc. CPA can handle simple to complex payroll processing services in Dallas, Texas for any number of companies. Maintaining employee information, processing payroll, paying employees and tax filing is easy to manage for us. Contact us for more information.