What is Payroll Administration

Payroll is defined as disbursement of salaries to the employees of an organization. The process consists of calculation of salaries and deduction of taxes, calculating retirement benefits and finally credited their salaries in their respective accounts. Administration of salaries to employees is not an easy task. Their must be a team work between the HR and Accounts department. Thus payroll management may be divided into two sub categories like payroll accounting and payroll administration.

Payroll Accounting involves calculation of employee’s salaries and tax deductions. It may also undertake the actives of tax filing, maintaining payroll records etc. while payroll administration involves managerial activities like maintaining employee records, updating employee laws etc. Here is when the human resource executive comes to picture. Where in he or she has to maintain daily record of employee attendance. A database for all employees is maintained which includes:

  • Employee name
  • Employee ID
  • Basic salary
  • Standard deductions.
  • Daily attendance
  • Leave records

The gross salary is calculated after adding the incentives and allowances. Net salary is calculated by deducted taxes and other deductible allowances like loan installments etc. The calculation of gross salary and deductions are very risky and a long process. Some organizations use the traditional manual method while the other goes in for advanced payroll processing software.  An organization can go for any of the following payroll procedures discussed below.

Manual system: this is a traditional system which involves usage of spread sheets and the HR manually adds each and every record of the employee. Now a day only few small organizations use this system, but this of process is very tedious and risky as it is prone to errors.

Accountant: he or she is a professional who is responsible for all accounting activities. They have sound knowledge of accounting principles that are accepted globally. This process adds cost to the organization, because it has to pay for the services of the accountant.

Payroll software: this is a fully automated process that performs all the payroll transactions. It helps in generating pay slips in very lesser time. The result of this is no errors. Validation of data is done automatically. This procedure needs professionals who are trained in using this software.

Payroll outsourcing: this process is fast catching up importance in payroll administration. It involves a third party to whom the work is outsourced. The outsourcing company is wholly responsible for all the payroll activities. It saves cost and time for the organization. It is useful if the company has more than 1000 employees.

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