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What Is Payroll?

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what-is-payroll

What is Payroll?

Payroll is defined as the payment of wages to employees for work performed. Employees who perform services for businesses are known as workers. If the employee is self-employed they are called entrepreneurs. There are two different types of payrolls: direct and indirect.

Direct payroll means paying wages to employees directly. Indirect payroll occurs when employers pay taxes and social security fees, then pass these costs along to their workers.

When to set up payroll?

The first step in setting up any business is determining what type of business structure you want to use. Business structures determine how much ownership the owner holds in the company. There are four basic business structures: sole proprietorship, partnership, LLC, Incorporated. Each of them have advantages and disadvantages. In general, the more formal the structure, the greater the degree of regulation and responsibility held by the owners. Sole proprietorship requires no formalities and no incorporation. Partnerships require some legal paperwork and filing fees. LLC’s are easiest to start and maintain, Incorporation is the most flexible option if hiring additional staff.

What do I need to set up payroll?

Setting up payroll can take anywhere from 5 minutes to several weeks depending on the size of the organization. A payroll system consists of three parts: Accounts Payable (A/P), Accounts Receivable (A/R) and General Ledger. An accounting software program will handle the accounts payable side of things, while the general ledger part tracks money spent and money received and keeps track of how much cash each individual owes or receives at the end of the month. The third piece, Accounts Receivable, acts as a record-keeping tool and handles customer payments. These pieces serve as a database for tracking sales, customers, invoices, payments, and expenses. Accounting software programs vary greatly in price. To choose the right fit for your budget, consider the features and options that are offered on each program before purchasing.

How does payroll work?

Payroll begins with a check being cut for each employee. You will send out a W-2 Wage and Tax Statement Form to each of your employees. The W-2 includes information about the income earned for that period of time and whether Social Security and Medicare Taxes were withheld from the paycheck. The employer sends an 841 tax return form to the IRS where he/she reports the income earned by his/her employees. The final step of payroll is sending out the 1099 forms to those individuals whom did not withhold taxes. The 1099 form provides a breakdown of all money earned by each employee.

What happens after payroll?

Once the checks have been written, they need to be deposited into bank account(s). Usually, this takes place the following day. Once these deposits have taken place, the bank transfers funds to the government agencies that your employees owe money to. At this point, all money owed to the IRS and state governments has cleared. From here, the remaining amount owed goes towards the employee's personal accounts. If an employee makes more than $600 in a year, there is a requirement that a W-4 Income Verification Form be completed. On it, the employee lists their allowances for federal income tax purposes. This number is used to calculate their payroll deductions. Finally, the remaining balance is transferred back to the employee's bank account.

Benefits of payroll

1. Payroll saves time, money and headaches

Managing payroll is just part of being self-employed. Once a month, it’s my responsibility to pay employees their wages and file taxes. However, once I have filed those things, I no longer need to worry about them. In fact, they aren't even mine anymore! So, in some cases, if you’re not sure how much to pay your employee, just go ahead and give them a little less than what you think you should (and tell them why). If you don't get it right the first time, just take off whatever you overpaid them and use that extra money for something else.

2. Payroll saves you money

If you’ve ever tried to calculate paychecks yourself, you know it can become quite complicated. You probably also know that paying someone else to do it is expensive. By hiring a professional service provider who knows the ins and outs of tax codes, employee rules and regulations, they can save you both time and money. Plus, they already have access to software designed specifically for payroll purposes that can help keep track of everything.

3. Payroll saves you headaches

As an employer, you likely face many questions throughout the year regarding workers' compensation insurance premiums, unemployment rates, vacation days and sick leave. All these things can affect your business's bottom line. But, if you hire a payroll administrator to handle it for you, you won’t have to stay up late doing research or spending valuable time explaining the various laws and regulations surrounding payroll. Instead, they can do all that work while still giving you time to focus on other aspects of your business.

4. Payroll saves you time

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When it comes down to it, you can always find something to do in the morning hours. And, if you’ve got a lot of paperwork to complete, you may want to start early. But, if you’d rather spend your mornings focused on running your business instead of filing papers, consider hiring a payroll expert to handle it for you.

5. Payroll saves you sanity

You know you have enough to do without taking care of payroll. And, you certainly don't want to let anything slip through the cracks. But, when it comes to payroll, you never really know what you might find. On top of that, the IRS requires employers to report certain information to them each quarter. As a result, you'll have to track down records, make copies, and send out receipts to prove compliance. All of which means you're going to miss out on precious time.

And, because of all these reasons, payroll services are often worth the monthly fee.

why do companies use payroll?

1. Payroll makes them feel safe

Payroll is the legal requirement that employers pay their employees. A company’s business practices should not be illegal because they follow the law. If companies were not legally required to pay their employees, then those who have been wronged would lack recourse. In order to protect themselves from lawsuits, many businesses choose to hire payroll services instead of handling their own taxes.

2. Payroll provides them with a sense of control

Many small businesses may find it difficult to navigate the tax code; therefore, they choose to outsource payroll processing. By outsourcing payroll, companies maintain control over their finances. Without the need to understand how much income tax to withhold, small businesses no longer have to worry about being audited.

3. Payroll ensures consistency

If a payroll company does not properly prepare payroll documents, workers could face audits from the IRS. When working with payroll companies, it reduces the risk of errors. Instead of paying a worker $100,000, a business might only end up making one payment of $10,000. This type of error could lead to a significant loss for a business. However, if a company chooses to handle its own payroll, they would risk losing control over their money.

4. Payroll makes their books look cleaner

In addition to helping ensure that they are following the law, payroll helps a business keep track of its financial information. Because payroll takes care of the bookkeeping for a business, they don't have to worry about inaccurate records.

5. Payroll gives them peace of mind

When a company is responsible for its own accounting, they have to constantly monitor and update their books. Employees often ask questions such as, “Is my paycheck coming?” and “What is going on with our accounts?” However, if a company outsources payroll processing, they don't have this burden. Their employees know that they will receive their full salary, and they can focus on being productive without worrying about the company's financial issues.

What is the main purpose of payroll?

The main purpose of payroll is to pay employees their wages. When dealing with payroll, there are two parts involved. There is the actual processing of payroll, and then there is communicating the information. These tasks are done by employers (the company) who have workers (employees).

Payroll happens at different times, depending on the type of business and employment arrangement. Most businesses complete payroll monthly, weekly, bi-weekly, quarterly or yearly. In some cases, payroll may not occur at all if there is no need for it.

Communicating with Payroll

When we talk about communicating with payroll, we mean getting the information out regarding what was paid to whom. This includes sending the paychecks to the employee's home address as well as keeping track of the deductions.

Many companies use direct deposit and electronic banking services to make sure that the money gets to the right place. If you're unsure how to set up direct deposit, check with your bank. You'll be able to find instructions online.

Processing Payroll

Depending on the industry that you work in, you might be responsible for processing payroll yourself. However, many companies hire professionals to do this for them. For example, if you were working in manufacturing, you would probably have to deal with payroll yourself.

If you choose to take over the responsibility, the first thing you should think about is whether you want to charge hourly or per hour rates. Hourly is calculated based on a 40 hour week; however, per hour calculations take into account overtime hours and vacation time. If you charge per hour, consider whether you want to do the entire process yourself or whether you'd prefer to hire someone else to help you.

In addition to calculating your rates, you'll also have to determine how much time you spend on each task and divide it by the number of hours worked. To calculate the amount of time spent on each task, look back through any training materials that you've been given. Also, look at similar jobs performed by people in your field. A good way to get started is to write down everything that comes across your desk on a daily basis. Then figure out where the time goes.

After figuring out how long it takes you to perform certain tasks, you should create a schedule outlining what you plan to accomplish.

As you go through the list of tasks, you'll notice that you won't always have the same amount of time to complete each one. This means you'll need to adjust your schedule accordingly so that you don't exceed the allotted time. You should also factor in unexpected interruptions and delays.

Finally, once you know exactly how long it takes to complete each task, you'll be able to calculate the total number of hours that you put into processing payroll. After doing this, multiply that number by your hourly rate to determine the cost of performing the job.

You'll want to keep track of this information so that you know what you owe to those who helped you with the job. Since this isn't something that you will be doing every month, it's helpful to keep track of things using spreadsheets. You'll also want to save copies of these documents in case you ever need to refer back to them.

Source: QuickHR Payroll Software Singapore

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