What Happens in Payroll Processing?

The payroll process refers to the steps a company needs to take to financially compensate employees for a period’s work hours and other claims while taking into account deductibles. Processing the payroll ensures that employees are accurately paid what they are owed in a systematic and transparent manner. In this article, we aim to give you an introduction to payroll processing and to help you understand the steps needed to ensure the employee is paid correctly.

The payroll process actually starts from the moment you hire an employee. During a pay period, the employee needs to be paid based on the contractually agreed pay rate and hours, including that of overtime hours. As such, your company needs to start by collecting each employee’s time worked based on a timesheet or scheduling system. Next, the agreed pay rate needs to be multiplied by the hours worked and overtime performed respectively. When added up, this forms your employee’s gross pay. 

However, before distributing the calculated sum at the end of the pay period, deductibles such as taxes, CPF contribution and insurance needs to be first deducted. The paperwork involved in this step is potentially a large stumbling one as different deductibles could involve various processes in order for the financial sum to be tabulated correctly. After taking into account the deductibles, you would have arrived at your employee’s net pay, which is the sum that is given to employees via a pay check, GIRO or direct deposit. 

To process the payroll, businesses can choose between manually doing it themselves, purchasing a payroll software, or utilising payroll outsourcing services. Small businesses often opt to manually process the payroll by tracking their employee hours on timesheets and inputting earnings on a spreadsheet. This ensures that they do not incur any external costs when performing this task. However, it is a time consuming and error prone method. For example, it may take them significant time to process the payroll for a few employees as they have to add up the timecards, calculate office hours pay and overtime pay. After which, deductibles have to be processed as well. 

Based on the sampling of many small companies’ manual payroll processing time, we have found that small firms would require 3 days to finish the entire process while also requiring an extra day to handout the payslips to their employees. If any error or discrepancy is found, the process would require repeating. As such, it is strongly advised that the company adopts the utilisation of either payroll software or outsourced payroll services.

On a final note, you should take note of employees’ whose services are either ending or being terminated. Depending on the legislation governing your business, different payment processes may be needed. For example, you will need to determine if immediate compensation or a 30 days limitation period applies to the amount owed to the employee who is leaving your firm. 

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