In simple terms, payroll refers to employee information, hours worked, salaries and wages, deductions, net and gross pay.
Before setting up a payroll system to pay your employees, you need to collect information from them which is obligatory. They will have to fill in a form and the data can then be put into the system.
If your employees are paid by the hour, then records must be kept of the hours that they have worked. To work out a person’s total wage, you must multiply their rate of pay by hours worked and then factor in deductions for tax and social security purposes.
Employees on a salary, on the other hand, are paid a yearly rate that is split over 12 months less deductions, but it is also important to make sure that the time has been put in.
With salaries and wages, what you pay to the employee before deductions is referred to as gross pay and what they take home is net pay. This must be displayed on pay stubs.
You must also keep track of overtime and the rates that you pay depend on the type of employees that you engage. If they are paid by the hour, they must be compensated for extra hours worked in a day or week. Shift workers must also be compensated for extra hours worked.
Payroll also involves fringe benefits and any accruals of time of in lieu for extra hours worked. Effective payroll also means keeping track of time off and holidays and also extends to keeping track of sick leave.