Understanding payroll and its functions

For any business, small or big, payroll management is one of the fundamental functions that has to be handled carefully as it deals with paying wages to the people employed. In practice, it has been found that this function extends to a fairly wide range of administrative and labor issues throughout the world. Even the smallest of errors in paychecks or any tiny miss meeting the statutory compliances can invite disastrous consequences.

The rapidly expanding organizations on the international stage, the exhaustive set of government regulations, the dynamic workforce and the proliferation of digital tools have only added to the complexity and have made the payroll function a critical focus point in any business.

What is payroll?

Wikipedia defines payroll as a company’s list of its employees. It is commonly used to refer to

• The total amount of money the company pays to its employees
• A company’s record of its employees’ salaries and wages, bonuses and withheld taxes
• The company’s department that calculates and pays these

Payroll department and its functions:

The primary mission of the payroll department is to ensure that all employees are paid accurately and timely with the correct withholdings and deductions. The core functions that payroll generally include are:

• Calculation of the wages due to each employee, according to their contracted payment basis
• Calculation of bonuses or deductions according to the specific work done by the employee during the period
• Calculation and deduction of taxes, social insurance and other pay-related obligations
• Deduction of pension contributions
• Deduction of voluntary amounts (e.g. union dues, saving schemes, etc.)
• Management of holiday pay and other entitlements
• Management of sick pay and other support payments
• Maintaining records of all pay-related amounts
• Generation of payment instructions – e.g. for bank transfers or requisition of cash
• Provision of information to the accounting and audit systems
• Provision of information and reports to the MIS

         Though the above is all number-driven and have shared functions with the finance department of the organization, it is a core part of the HR system as there is a deliberate need to harmonize with the human resource department. The employee data, the payment policies, the leaves and benefits are all an integral part of HR and therefore payroll becomes a shared function within HR. HR payroll has become a buzz word in the age of digitization because all the tools used for HR and payroll call for integration in this era. These days we have a core HR software system which manages end to end HR functions with different packages to hire, onboard, training, online attendance management system, employee self-service, leave, payroll, etc., all integrated together. This has immensely cut costs, improved accuracy and efficiency for businesses to manage their HR and payroll functions.

          Businesses may decide to outsource payroll owing to its complexity in legislation and to reduce costs spent on training and software if it decides to handle it in-house. On the other hand, businesses may also decide to utilize payroll software to supplement the efforts of a payroll accountant or office instead of hiring more payroll specialists and outsourcing a payroll company. Today, we also have cloud based software solutions which has cut costs even more and has made payroll functions easier and cheaper than ever.