What Is Payroll? A Guide to the Modern Payroll System

A good payroll system is comprised of many components– but at its core, what is payroll?

Payroll refers to a company’s roster of employees and the total wages they are to be paid. Although the definition is simple, managing the process as an HR professional is quite complex. There’s a lot to keep track of, which is why we’ve put together this article to help you understand the ins and outs of payroll.

What is Payroll Tax?

For small business owners, employer payroll taxes can consume a substantial amount of time, especially if you don’t have the right tools in place. In fact, some small businesses can spend over 120 hours per year on taxes, and 67% of small business owners report the largest burden of federal taxes is administrative.
In addition to handling all major federal, state, and local taxes, you’re responsible for staying current on:

• Reciprocal State Tax Agreements
• Courtesy Withholding
• Subject Wage Limits
• Tax Credits
• Exemptions and Exceptions
• Supplemental Wage Taxes
• Employee Type
• Business Type
• Business Ownership
• Proration

Keep Up With Legislation and Loose Ends

The Fair Labor Standards Act (FLSA) requires you to keep all records that explain the reasoning for paying different wages to employees of opposite sexes at the same company for two years. You need to keep any employee benefit plan or any documented seniority or merit system for at least one year to be compliant with the Age Discrimination in Employment Act. You’re required to keep all records of an employee’s pay history for at least three years.

What is Payroll in Regards to Your People?

First, identify which type of workers you employ, or how many of each. There are four main categories:

• Full-time
• Part-time
• Temporary
• Seasonal

When it comes to payroll, each employment type will be paid differently.

Full-time employees are entitled to the most benefits and work 30–40 hours per week. Note that the number of hours an employee must work to be considered full-time varies between states.

Part-time employees are paid hourly, but according to the Fair Labor Standards Act, they are treated similarly in overtime pay, record keeping, and minimum wage.

Temporary employees are hired most frequently from temporary staffing agencies and are therefore not considered employees of the hiring entity. They will most likely be offered benefits through a temp agency instead of the organization they’re working at.

Seasonal employees may work 20 or 40 hours per week during the period of time they’re hired, they likely won’t be considered full-time or part-time.

Although weekly pay is convenient for employees, it’s the most work for administrative professionals.

Pay Schedules

Next, look into which pay schedule works best for your employees. Will you pay weekly, bi-weekly, monthly, semi-monthly, or monthly?

Weekly pay schedules are common in many organizations and work best for companies who pay hourly wages. They pick a standard weekday, such as Friday to disburse paychecks. Although weekly pay is convenient for employees, it’s the most work for administrative professionals.

Bi-weekly pay schedules are the most popular for large and small organizations. Employees receive paychecks on the same day every other week. Employees always know when they get paid so they can budget for expenses easily with this schedule. It’s also less work for payroll staff as it doesn’t require them to run payroll every single week.

Semi-monthly pay schedules distribute paychecks twice a month. Dates usually fall on the beginning, middle, or end of the month, including the 1st, 15th, and 31st. With this schedule, payday can vary from month to month, which means sometimes it will fall on a weekend or holiday. However, many other systems run on a monthly basis, such as benefits packages (typically).

If payroll is linked directly to employees’ benefits packages, semi-monthly paychecks will make the two easy to sync.

Monthly pay is the least time-intensive for HR staff, but also the least popular among employees. It works best in industries in which the income is irregular, making it difficult to pay employees more frequently. Paychecks are received once a month on a specific, recurring date, e.g. the 20th of every month.

Exempt or Nonexempt?

When it comes to payroll, there are key differences between exempt and nonexempt employees. Those who meet specific job duty and base pay requirements are exempt employees. They’re typically on salaried pay, and they aren’t entitled to overtime pay.

When it comes to payroll, there are key differences between exempt and nonexempt employees.

Nonexempt employees are typically paid less than $23,600 per year ($455 per week) and are entitled to overtime pay. However, some states have different salary thresholds of nonexempt employees, so double-check before you classify.

A Modern Workforce

What is payroll beyond just payday? It turns out, there’s more to payroll than just receiving paychecks. HR leaders typically utilize HR software to help streamline the payroll process. A modern payroll system should be simple, easy to use, mobile, accessible, and transparent.

After introducing a payroll system to a bank account there should be little additional maintenance required. Employees should be able to make changes, apply for reimbursements, and log overtime whenever and wherever. All systems should be integrated, so when employees change personal information on one platform, it should be reflected in pay runs, on pay stubs, and more.

Submitting timecards or checking paystubs should be done right from any mobile device. Request a day off for a last-minute dentist appointment or an impromptu trip. It shouldn’t take longer than sending a text. Gone are the days of the punch-clock. Whether your workforce is on-site, remote, freelancers, or contractors, your workers should be able to submit and receive payment for the hours they work.

See all details of a pay stub to discern exactly where money is going on deductions. These allow user access even after an employee leaves a company. Employees, past or current, will always be able to view their pay histories.

What is Payroll Software and How Does it Work?

Between managing all different types of employees, filing taxes, and maintaining a pay schedule, payroll can quickly turn into an unnecessary burden. So then what is payroll software and how exactly does it work? A modern all-in-one payroll solution can take care of all of these things for you in minutes—you just have to find the one that fits you, your employees, and your business. Here are a few components to look for in an HR software:

Integration

Staying updated means communicating between different parts of the platform. Changes in personal information, paid time off, payroll, etc. should be streamlined across features.

Scalability

A modern payroll system should not only help you manage your current employees, but also offer a structure that helps grow your business and makes hiring and onboarding new employees a breeze.

Clear Pricing

Typically, what is payroll pricing? It can vary depending on your provider, and sometimes it’s not very clear. Your payroll solution shouldn’t nickel-and-dime you for off-cycle pay runs, W2 filings, or any other activities that you need to do to successfully run your business. It should offer a clear price with no hidden fees.

Transparency

Preview automated pay runs, make changes on the fly, identify and audit changes in the system, and discover new insights into your business to help it run smoothly.

Engaging User Experience

A mobile workforce means mobile-friendly software. Allow your employees to easily make changes to their personal information, access their pay history, and request time off, all on-the-go.

Customer Service

Regardless of how simple your payroll product can be, HR issues are complex. Look for a product that offers customer support by phone, email, and live chat, so you’ll always have the help you need.

Reporting

A good business intelligence feature can give you crucial insight into your workforce. Track compensation and pay changes by team, department, and location. Run custom salary reports by gender, race, and age to help support your diversity and inclusion efforts.

Compliance

Look for a payroll system that automates the hard stuff and makes you feel confident that you are adhering to the latest tax and labor laws as well as state and local legislation.

Up-to-Date

Along with keeping you compliant with new and constantly evolving laws, a payroll solution that lives on the cloud will always provide you with the most up-to-date information and will require very little maintenance.

Unique Features

The best payroll software will provide your employees with self-service, automatic tax-filing, a best-in-class mobile experience and more.