20 Mar 2021

A step-by-step guide to payroll management

Payroll management is an essential part of running a business, and you need to have the right tools and systems in place to make sure everything is functioning smoothly.

calculator with coins and safe next to it

It’s also key for creating a positive employee experience from start to finish. After all, payroll is one of the most important business processes, and one that directly affects all employees.

Having the right payroll management system in place will help you guarantee that:

  • Your employees are paid on time and the amount they receive is always correct
  • Your onboarding process is smooth and easy both for you and for employees
  • You’re withholding the right amount of taxes and staying compliant with local and national labor laws
  • You’re remitting taxes and deductions on time
  • Your payroll records are safe and securely stored

Obviously, payroll is only one piece of the puzzle when it comes to managing a business, so you need to make sure your payroll system is well-integrated with your other processes, and that you’re always putting your employees first.

In this article we’ll define what payroll management is, explain why it’s important for every business, and also give you a step-by-step blueprint to managing your payroll successfully.

Let’s dive in.

What is payroll management?

Payroll management is the administrative process of paying your employees’ compensation (their salaries, wages, and bonuses), as well as managing any deductions from their pay, in accordance with your company’s policies, local laws, and best practices. Managing your employees’ taxes, insurance, and retirement contributions are also an essential part of payroll.

Manual payroll management can be very resource-intensive, and exposes you to eventual errors. This is why most companies are now switching to automated payroll systems, and most often to cloud payroll software.

To manage your payroll successfully, you need to consider a number of factors:

  • Your employees’ experience and satisfaction with your payroll process
  • Your company’s policies for employee pay, time and attendance, leave and benefits
  • Input data storage and management
  • Deductions, taxes, and compliance with local and national labor laws

That’s not all there is to payroll, however. You also need to make sure your payroll is well-integrated with your other business processes, and also that it’s enabling a positive employee experience.

Historically, outsourcing your payroll was also a popular option, but if you compare outsourcing payroll, in-house payroll management, and a hybrid model, you’ll quickly see that letting someone manage your payroll entirely is the least advantageous option you have (and also the least secure way of doing payroll).

That’s where a unified workspace platform can help: it provides you with a 360-degree view of all your admin processes and allows you to effectively manage all of them, and also puts your employees at the center of your business by providing them with a single system where they can access everything related to payroll and to their work in general.

Why is payroll management important?

For any business that has employees, it’s critical to keep on top of payroll management. There are a few key reasons why payroll management is so important:

  • It’s a legal requirement: If you don’t have an efficient payroll process in place, this might lead to a failure to comply with local and national labor and tax laws and risk expensive penalties or wage claims. To stay compliant, you need to manage your payroll well and have the right system in place.
  • It’s necessary for the health of your business: If your payroll process is efficient, it will help create a positive employee experience, which in turn will boost productivity. According to a Gallup survey, employee engagement is directly linked to better business outcomes, such as lower employee turnover and better profitability.

As you can see, payroll management is essential for any business that employs staff. In the next section, we’ll give you a step-by-step guide to managing your payroll effectively.

How to create a comprehensive payroll management strategy

Let’s now see how you can create a comprehensive payroll management strategy that will work for you in the long term.

Put your employees first

Your employees are driving your business forward, and payroll management should be about them, not about you. Payroll management systems need to be created around employees, not around admin staff, but from our experience we can say this is rarely the case.

Get the right tools

Look for a payroll management platform that is built with the employee experience in mind, or even better, for an app that can handle all your business processes, payroll, HR, and employee accounts included. This will help you streamline all processes and make them more efficient and easier to navigate for your employees.

Set up a process for payroll management

In the previous section, we gave an example of a payroll management process. The specific details might vary depending on your location, but in general, payroll processes look similar. Having the right software tools will greatly help with this and will save you hours of manual work.

Make sure you’re always compliant

Obviously, compliance is key for any business. In the age of remote and hybrid working models, it might come with its specific set of challenges, including handling payroll for employees located in other countries and handling contractor payments.

In addition to that, you need to make sure you’re staying on top of any new regulatory requirements or changes to deductions and taxes, such as the increase in National Insurance contributions in the UK.

A step-by-step guide to payroll management

For the financial health of your organization, it’s important to get payroll right for each employee. In this section, we’ll look at the different steps of payroll management.

1. Define your payroll policy

Your payroll policy includes details about pay, attendance and time off, employee benefits, and more. It needs to be defined early on and approved by your management team.

2. Onboard new employees

The first step to payroll management is onboarding new employees. If you’re using payroll software, this means creating a new profile for each employee and gathering all their input data, in line with local recordkeeping requirements. Depending on the country, this data will typically include:

  • Name and address
  • Job title
  • Social security number
  • Bank account details

3. Gather input data

Input data will define gross and net pay; the type of input data you need to collect will depend on the country where you’re from, but it typically includes details like:

  • Monthly/yearly salary or hourly wage
  • Number of hours/days worked each week
  • Time off (and the type of leave)
  • Overtime
  • Bonuses
  • Allowances and reimbursements claimed
  • Taxes
  • Voluntary and mandatory deductions, and more.

If you’re using software that manages all HR and payroll processes, a lot of this information will be automatically collected.

4. Double-check employee input data

Double-check the data once you have everything, to make sure it’s in line with your payroll policy. Make sure all employees are on your payroll, and that all terminated employees are no longer in the system.

5. Calculate gross and net pay

Next, you need to calculate employees’ gross pay, as well as deductions and taxes due, in order to calculate net pay. If you’re doing this manually, this will likely be the most time-consuming part of the process – and will be prone to errors. For this reason, we recommend using a comprehensive unified workspace platform that allows you to manage payroll efficiently – or at least a payroll app.

6. Pay employee salaries

You need to make sure that you have sufficient funds in your company’s bank account to make salary payments and then order them. If you’re using a payroll system that is connected to your bank account, this can also be automated (but you still need to check you have sufficient funds). Zelt enables you to make bulk payments to all employees in seconds.

7. Remit deductions and taxes

Next, you need to remit all taxes and voluntary and mandatory deductions to the tax authorities. Be mindful of due dates, too: you can use reminders for all due dates and make sure you’re allowing sufficient time to process all payments.

8. Distribute payslips and tax declarations

The last step of payroll management is distributing payslips and tax declarations to your employees. If your payroll system has a self-service portal, employees can access all relevant information and also download their payslips from it.

These steps might vary depending on your location, but the overarching principles of payroll are similar in all countries.

Why using the right software tools for payroll management is essential

Payroll is one of the more complex processes out there, and the consequences of not getting it right can be disastrous for your business. Additionally, the way you’re managing your payroll has a direct impact on employee satisfaction and engagement: Employees expect a consumer-like experience from their employers and the software they’re using at work – and the payroll system you’re using is a big part of that.

For the best results, we recommend using a system that is actually built around your employees, and that enables you to handle all admin processes in one place, providing your workers with a single point of contact for all their admin needs and day-to-day work tasks. A unified workspace platform that features payroll management, HRIS, app access and device management will help you do that