Your Expert Guide to Payroll Management

Only 60% of US employees are confident they receive accurate pay from their employers, especially if they work for small businesses. Companies with 20 or fewer employees are more likely to be late with paychecks or have more payroll errors than bigger businesses.

Usually, inaccurate wages and late payments stem from poor payroll management practices. If you just hired your first employees or find yourself outgrowing manual payroll, you may not know where to start. 

While a payroll system like Deel can help streamline payroll management, this guide will teach you the basics of setting up and processing accurate, efficient payroll and how a payroll management system can benefit you.

Disclaimer: This article focuses on payroll management and taxes for US employers and workers. This content is for informational purposes only and does not constitute legal or tax advice.

What is payroll management?

Payroll management is the process of administering employees’ financial records, including salaries, benefits, taxes, and deductions. Payroll management involves calculating employees’ wages, making payments, keeping payroll records, and collecting tax forms.

Businesses manage payroll in many ways: manually, with spreadsheets, or automatically via payroll software. Some companies outsource payroll to payroll experts like employers of record (EORs) or professional employer organizations (PEOs).

Types of payroll

The four most common types of payroll are:

• Weekly: You pay workers on a specific day of the week, every week, throughout the year
• Bi-weekly: You pay workers on the same day of the week every two weeks
• Semi-monthly: You pay workers twice a month, totaling 24 paychecks a year
• Monthly: You pay workers once a month, usually on the last day of the month

These are also known as payroll schedules. Your cash flow rhythm, labor market expectations, and international payroll laws will impact the type of payroll schedule you follow.

Steps of the payroll management process

Payroll processing involves more than disbursing money. You must prepare, process, and organize in three phases: pre-payroll, payroll processing, and post-payroll.

1. Pre-payroll 

In the pre-payroll phase, you collect and verify payroll information, such as employee timesheets and taxpayer information. For each employee, input information such as:

• Hours worked
• Bonuses earned
• Changes in salary
• Deductions and benefits
• Changes to personal or tax information

Once you collect and input this information, you can calculate and run payroll.

2. Payroll processing 

During payroll processing, you calculate employees’ gross pay (based on the number of hours worked and other bonuses, without withholding taxes). Then, you withhold (or take out) the employee’s contribution to benefits from their paychecks. Once you make these deductions, you’ll have the worker’s net pay, which you distribute to them.

In this phase, you also set aside payroll taxes and the cost of benefits for you, the employer.

3. Post-payroll 

Post-payroll involves organization and record-keeping. During this step, you resolve any issues with payslips, store payroll records, and make any changes to employee data or tax forms before you run payroll for the next pay period.

Tasks involved in payroll management

As mentioned, a company manages several payroll tasks throughout the three phases:

Employee wage calculation

Calculating employee wages is crucial for payroll processing, as you must ensure all employees receive the correct amount. Salaried employees will receive the same monthly paycheck, but hourly employees will receive different amounts depending on how much they work. For hourly (or non-exempt) employees, calculate and pay overtime wages.

Time and attendance software helps streamline payroll administration and calculations.

Payroll tax processing

Tax withholding comes right after gross pay calculations. In the US, tax deductions include mandatory employment taxes, such as Medicare, social security, and unemployment taxes. It also includes tax payments for voluntary deductions, such as retirement plan contributions. 

If an employee owes money to the Internal Revenue Service (IRS) or for child support, you may need to deduct wage garnishments at this point to ensure the employee’s paycheck goes toward the mandated debt payment.

Sending payments to employees

After deductions, employees receive their pay via the payment method chosen by them or their employer. Payment methods include direct deposits to an employee’s bank account, pre-loaded debit cards, cryptocurrency, and digital wallets.

Providing pay stubs

Pay stubs contain information about the breakdown of employee payments. Employees need pay stubs to understand withholdings from their paychecks and make correct calculations when filing taxes during tax season.

Payroll record-keeping

Under the Fair Labor Standards Act (FLSA), US employees must keep payroll records available for a minimum of three years, even if employees leave. If you fail to procure payroll records in the case of an audit, you may face liabilities and fines.

You can secure payroll records physically, but payroll management software allows you to keep documents safe and organized.

10 tips for efficient and accurate payroll management

As a business grows, payroll tasks become more complex, repetitive, and frustrating. The sooner you set up an efficient and scalable payroll management system, the easier it will be to adapt it to your growing workforce and business needs.

1. Set aside enough time for payroll each pay period

Ensure you have enough time to review employee tax documentation, hours worked, and other information relevant to your payroll. Business owners may spend up to five hours calculating their employee wages and taxes before each payday (even more if they pay their employees weekly or biweekly). If you want to save time, consider payroll automation software.

2. Set payroll calendar alerts

Create a payroll calendar in Google Calendar to notify you a few days before important payroll dates, such as payday and tax deadlines. Set up each alert to give you enough time to complete the task. As your team grows, you can share this calendar with employees to nurture transparency and let them know when they’ll get paid.

3. Document payroll processes

Documenting all payroll management processes in a handbook allows you to audit processes occasionally and scan for improvements. It also makes onboarding new payroll managers easier, should you ever hand off the task.

4. Provide employee training about payroll

Payroll automation software progresses every day, and payroll staff (or you, if you run a one-person business) should keep up with the newest trends and best payroll practices. Provide employee training to enhance collaboration among team members, help them automate repetitive tasks, and broaden their knowledge about running payroll. 

And if you’re the only employee managing payroll, set aside time to explain how payroll works to employees and let them know the importance of submitting their hours and documents on time if they want to get paid.

5. Plan for additional payments

When setting a budget and planning payroll, don’t forget about additional payments you may make, such as end-of-year bonuses.

Payroll doesn’t only refer to salary and wages but also other types of employee compensation like commissions, bonuses, reimbursements, and 13th-month pay. Plan for these additional payments and ensure the payment date is within the current tax year so you can appropriately adjust the employee’s income tax on tax forms.

6. Update employee data regularly

Employee data—such as addresses, last names, and hourly wages—will change over time. You should schedule regular data revisions (or ask employees to check their information) to ensure everything is current.

Making corrections after making payments is possible, but it takes a lot of time and can be an unexpected cost for your business. Confirm employee data, such as addresses and taxpayer identification numbers (TINs), with employees before filing tax forms with the IRS.

7. Choose scalable software

Choose a payroll solution that fits your current business needs and growth aspirations.

Scalable software means you won’t need to switch to a new payroll system as your team grows. Settling with one payroll solution and moving to another means new training sessions, setup, potential data security issues, and processes.

8. Ask employees for feedback

Ask employees for feedback to understand whether the payroll process is straightforward. Don’t make assumptions about employees’ feelings about payroll, especially considering how frequently employees leave when they don’t feel confident in their employer’s ability to pay their wages.

Asking for feedback may prompt you to provide additional training about payroll. It may also help develop new ways to optimize the payroll process.

9. Outsource payroll management services

Outsource payroll to a payroll service provider or an employer of record to save time, ensure compliance, and have one less task on your plate.

The number of companies outsourcing payroll services is growing for a good reason. Outsourcing payroll costs less than hiring full-time employees to handle the process, and you usually get access to payroll management software and professional support from payroll experts.

10. Ask your in-country provider (ICP) for advice

If you have a global team and outsource payroll to in-country payroll service providers, ask your chosen ICP for advice, as they know the best practices in different countries. 

Understanding the regulations from local tax authorities can save money for the employee or employer, as certain payments may be provided tax-free or free from social insurance contributions. For example, non-Polish employers may not be aware that in Poland, employer costs and social security contributions for some employees decrease substantially after they reach the annual limit for pension and disability insurance basis.

How to manage payroll for a global team

Global payroll is a system that lets you make international payments to foreign employees. When running global payroll, you must comply with federal tax regulations and employment laws, which vary by country.

If you decide to hire overseas, you have several ways to run payroll:

1. Hire independent contractors and let them handle their taxes. This way, you only need to pay the workers instead of navigating local labor laws regarding mandatory employee benefits and taxes
2. Open a foreign subsidiary and work with an ICP. This way, you get access to local expertise and don’t have to worry about potential law changes, as you always have someone to be on top of it
3. Use employer of record (EOR) services and outsource payroll and hiring processes. EORs are a safe way to hire international employees while ensuring full compliance, data safety, and a streamlined payroll process

See our Global Payroll Template for a breakdown of the day-to-day payroll tasks and familiarize yourself with how you can make bulk edits in an efficient way.

What to look for in a payroll management system

Hunting for a full-service payroll solution shouldn’t feel like guesswork, even if it’s your first time using payroll software. Here are payroll management software features to prioritize:

• Scalability: The software provides a simple solution for handling payroll with five or 5,000 employees
• Support: The software provides access to expert advice and customer support available 24/7
• A variety of payment options: The software offers workers different payment methods, such as direct deposit, pay cards, or cryptocurrency
• Data protection: The software offers data encryption, multi-factor authentication, and compliance with GDPR, especially if you hire overseas
• Self-service: The software offers self-service payroll functions to let employees enter their hours and change their information
• Global payroll: The software offers global payroll options so you can hire international employees

5 reasons to use digital payroll automation

A quarter of US companies still use the pen-and-paper method to manage their payroll. Manual payroll may make sense when you have one employee, but you risk making a simple but expensive mistake during data entry and calculation.

Here’s why most companies opt for digital payroll automation.

Accurately manage corporate finances

Payroll automation reduces payroll processing errors, which can result in employee dissatisfaction, costly fines, and even legal issues.

Digital payroll systems accurately calculate wages and deductions—you only need to enter employee data once into the system. You can also integrate the software with other tools you use for HR management or sync data across platforms.

Additionally, most payroll systems allow you to keep payroll records electronically, which is safer and more organized than physical copies.

Spend less time and money on managing payroll

Payroll automation reduces the hours and effort spent preparing payroll every pay period.

A Quickbooks survey showed small business owners typically find payroll management complicated and frustrating. They often underestimate the time required to process their payroll and spend around five hours doing it every payday.

You don’t need to do any calculations with digital payroll management software. The app calculates for you, so you can spend less time paying wages and filing taxes.

Avoid late payments or errors

Avoiding late payments and errors is critical for keeping employees happy. According to the National Payroll Week survey, many US residents live paycheck-to-paycheck and almost run out of money every week. And after two payment-related issues, 49% of workers will update their resumes and start looking for new jobs. 

Late payments can cause issues for employees and have a detrimental effect on their employee experience, increasing employee turnover. Recruiting and training new hires costs more than investing in payroll software that helps provide accurate, on-time payments.

Automatically calculate taxes

Business owners who fail to file payroll taxes on time can face hefty fines, interest on back taxes, and even criminal charges from the IRS.

These fines are easily avoidable with digital payroll systems that automatically collect employee tax information, calculate payroll taxes, and file them with the IRS. Most software offers alerts that remind you to complete taxes on time.

Keep sensitive data safe

Keeping payroll records and employee data in a cabinet isn’t safe, even if the cabinet is locked. Digital payroll systems offer several protection layers that protect payroll data from unauthorized access. These protection options include cloud-based storage, encryption, and multi-factor authentication.

Frequently asked questions about payroll management

Here’s what else you should know about payroll management.

What are the responsibilities of a payroll manager?

A payroll manager consolidates employee data collected from time-tracking software and tax forms before payday to ensure everything is entered correctly into the payroll software.

The manager must process all payments correctly and compliantly, maintain payroll records, and create payroll reports. They are also in charge of hiring, training, and supervising new staff on their team.

What’s the role of HR in payroll?

Payroll is just one of the tasks an HR department may manage. Human resources also handle recruiting, hiring, onboarding, contracts, providing employee training, organizing team-building events, and strengthening company culture. In larger companies, payroll and HR departments are usually two separate departments.

How do I prepare payroll for my employees?

To prepare payroll for employees, you should:

• Get an Employer Identification Number (EIN)
• Collect Forms W-4 from employees and ensure all the information is correct
• Choose a suitable payroll schedule
• Collect the data from your time-tracking system to calculate the wages
• Withhold taxes from your employees’ paychecks
• Send your employees Form W-2 in January

Read a more tips on payroll planning.

What is full-cycle payroll processing?

Full-cycle payroll processing refers to processing your complete payroll between two paydays. The length of your full-cycle payroll will depend on the schedule you choose. This schedule is also called pay frequency. Most companies pay their employees bi-weekly. 

Make global payroll management effortless with Deel

Managing payroll comes with its share of challenges. But if you plan timely, automate repetitive tasks, and review the process frequently, you can ensure accurate payroll while providing employees with a positive experience.

With Deel’s Global Payroll, you can effortlessly manage complete local and global payroll in one platform, pay employees and contractors in a single click, and rest assured you’re fully compliant with all applicable tax regulations and employment laws.

Here’s how Deel stacks up against other providers.*

Learn more about Deel’s Global Payroll solution.

*This data was collected March 30, 2022, and is subject to change. Deel does not make any representations as to the completeness or accuracy of the information provided.