Payroll Practices and Procedures
- Proper payroll practices ensure accurate paychecks.check in macro image by Alexey Klementiev from Fotolia.com
The payroll process ensures that employees are paid accurately and on time and that the company complies with all payroll tax laws. The payroll process consists of practices and procedures which streamline the payroll aspect of the business, guarantee accuracy in wage computation and tax liability, and record-keeping. - Employers can use the timekeeping system of their choice, as long as it is accurate and complete, according to the U.S. Department of Labor. Salaried employees are typically paid a fixed wage each pay period, while hourly employees are paid based on hours worked. Consequently, particularly in the latter instance, employers must establish a timekeeping system. Employers use time clocks or have workers complete times sheets, which superiors must approve.
To avoid uncertainty of the accuracy of the records, the Department of Labor notes that employers should train workers to use the time clock appropriately by punching in and out properly. The employer is allowed to round an employee's time up or down to the nearest five minutes, or to the closest one-tenth or one-quarter hour. This practice is acceptable as long as the employee is not underpaid for work performed. - The goal of payroll processing is to ensure that employees receive their paychecks on the pay date the employer has established. The payroll professional has to perform certain tasks: wage computation; figuring statutory and voluntary deductions; determining benefit days, including vacation, sick, and personal time and holidays; and double-checking the payroll for accuracy before printing checks or sending the direct deposit file to the bank.
The payroll system used is entirely up to the employer. The three most common payroll systems are manual, in-house computerized and external. A manual payroll is done entirely by hand; an in-house computerized system involves using payroll software and employing an on site payroll office; an external system includes outsourcing the payroll to a payroll service provider. Whichever method the employer chooses, he should establish written procedures for the process involved. - Withholding payroll taxes from employees' paychecks and forwarding those taxes---along with the employer's portion---to the federal or state government is an important part of the payroll procedure. The employee's federal income tax amount is determined by his W-4 form and the Internal Revenue Service withholding tax tables. The government sets the Medicare and social security tax rates. Any required state tax amount is determined by the employee's state tax form and the state withholding tax tables. The employer must pay Medicare and social security taxes, federal unemployment taxes and, in some states, state unemployment taxes. Federal income tax and social security taxes are due to the IRS based on the employer's payment schedule---biweekly or monthly. State taxes are due according to the employer's state guidelines.
- Employers are required to keep payroll records at a central office location or at the workplace for at least three years. Furthermore, wage computation documents, including time cards and time sheets, must be kept for at least two years. The payroll procedure includes maintaining these records and keeping them open to audits and inspection.
