Payroll Administration: What It Is and Why It Matters

Payroll administration is a critical facet of business. Here’s how accuracy, efficiency and reliability in the process benefits a company and its workforce.

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doing payroll administration and setting up payroll

While they may happen to enjoy their jobs, many employees work primarily for the money. They have financial obligations like mortgages and other bills that must be paid on time. Shoddy employer payroll practices won’t be viewed positively. A recent survey found that among companies that experienced litigation from payroll errors, 35% encountered increased employee turnover and 30% saw employee morale decline. (1)

Hence, efficient payroll administration matters. Payroll administrators facilitate all elements of employee payroll. The ideal result? An accurate, seamless, trustworthy process that benefits the company and its workforce.

What is payroll administration?

As it pertains to overall business administration, payroll administration is part of a company’s payroll department. It’s the umbrella under which every action related to payroll falls.

In larger companies, the payroll administrator typically works closely with the Human Resources department. In smaller companies, the business owner may handle the payroll administration tasks.

What does payroll administration accomplish?

Payroll administrator responsibilities include building and overseeing all aspects of the payroll process. Here’s a look at some of their primary goals and initiatives.

Ensuring work hours are properly recorded

Essential tasks payroll administrators perform to ensure they are calculating payable hours include:

  • Accurately tracking clock-ins and -outs.
  • Noting sick and vacation time.
  • Properly tracking and paying overtime, commission, bonuses, and additional payable hours.

Delivering accurate and timely employee pay

The above actions give payroll administrators the complete picture of when employees worked, for how long, and when they took off. It also provides them with how much money they earned. Tracking this data maximizes the ability for employees to be paid correctly.

Tracking tax withholdings and deductions

Accurately tracking pay and tax status, the amount withheld from every pay period, all payroll deductions (like health and life insurance payments), and other deductions is essential. Payroll administrators should also be available for answering employee questions on these topics, as they can be confusing.

Providing general record keeping

An efficient payroll administrator will be thorough and comprehensive. Detailed payroll records containing data about every related facet will prove helpful in numerous circumstances. Organizations can use it for planning and budgeting, at tax time, and during audits.

Why is payroll administration important to an organization?

Accuracy and efficiency surrounding the payroll experience helps drive employee satisfaction and keep a company in good fiscal and legal standing. Therefore, managing it well is a most vital business requirement.

Builds employee trust and satisfaction

Getting paid accurately and on time keeps employees happy and engaged. In addition, having a designated contact to answer questions about pay, benefits, and deductions may alleviate employee stress and confusion.

A well-functioning payroll system makes the experience feel effortless to the employee. Other conveniences, like electronic timekeeping systems and direct deposits, can add to their overall satisfaction.

Follows employment laws

Federal, state, and local laws govern how an organization is required to pay its employees. Making errors can open companies up to costly fines and penalties. Payroll administration mitigates the risk of expensive errors putting the company’s health at risk.

Aids in tax compliance

Organizations are also required to abide by the rules and deadlines regarding taxes set by the Internal Revenue Service. Payroll administrators follow these rules closely and use them to guide payroll processes. How to classify workers, how much payroll tax and income tax to withhold each pay period, and other important tax-related tasks become their responsibility.

What are the options for payroll administration?

Depending on the company size and employee bandwidth, decision-makers may choose to either keep payroll administration duties in-house or outsource them. Advantages and drawbacks exist with either choice.


Organizations may hire an employee who serves as their payroll administrator to keep the functions internal. Implementing payroll software can ease the burden of handling these tasks inside the company. The benefit of in-house administrators is that they, too, are employees. It may be easier for their coworkers to trust and build rapport with them. However, hiring an employee can be a costly prospect and may stretch a small company’s budget.


Choosing an external company to handle payroll administration may be a smart choice for organizations not ready to increase their employee base. Professional payroll companies can offer an already-built, seamless process. The downside is that outsourcing payroll may be more expensive than employing in-house staff. Plus, sending personal data outside the company can make some business leaders leery of this option.

Employers and employees alike benefit from an accurate, reliable, and complete payroll system. Understanding payroll administration, its importance, and what it takes to run effectively is a first step toward building an efficient process.

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1 Cost and Risks Due to Payroll Errors study

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