Ways to Do Payroll

Processing the company payroll may not be the sexiest use of computer technology, but it is one of the most essential.

If all employees work in one location and are paid a straight salary a couple of times a month, payroll processing is relatively straightforward. Any payroll processing

system available for your tax jurisdiction, whether packaged software or an outsourced service, will be able to handle it. Your biggest decision may be choosing the logo you want printed on the checks.

However, if you have a widely dispersed workforce, employ hourly workers who are paid an overtime premium and shift differentials, or are subject to a union contract, you need to carefully evaluate your proposed payroll processing solution to ensure it can accommodate your more demanding requirements.

Payroll was one of the earliest business applications to be automated because it requires a lot of calculations and an accurate database to record the results. Calculating the gross pay isn’t too difficult, in most cases. It’s all those taxes and other deductions that can have an accountant twisting his abacus beads in a knot.

Granted, it’s still possible to calculate payroll manually. Most tax jurisdictions offer paper manuals with detailed calculation instructions. However, unless you have a very small payroll or are exceptionally cost-conscious, you’ll want to consider some computerized method of payroll processing that will save your time and increase accuracy.

An Excel spreadsheet is an inexpensive and relatively easy-to-use method to perform payroll calculations. However, given the ease with which a spreadsheet can be modified, it can’t promise to maintain accurate payroll records. How do you fulfill the government reporting requirements with all those persnickety forms?

Luckily, there is no shortage of real payroll processing solutions. Many small business accounting packages, such as Intuit’s QuickBooks, come with payroll capabilities. There are a number of stand-alone payroll applications, many of which can integrate, or pass along, information to your business accounting application. You can also use an outsourced payroll service. Most payroll services are now online, though a few still operate using rather quaint touchtone telephone input or paper input forms you fill out and then courier or fax to the central bureau.

More local services than we can count also provide outsourced payroll services. These services may be offered by your certified public accountant, bank, or other financial institution, or by a specialty payroll processor.

The distinction between a payroll application and an outsourced payroll service has blurred. A traditional payroll application requires you to run the software on your computer and print checks and deduction advices (also called pay vouchers) on your printer. Regular tax table updates (to reflect changes in rates) are usually made available on the Net for you to download and install to update the software.

A payroll service, on the other hand, performs the pay calculations on a remote computer. The service then prints the checks on a remote printer and delivers them to your business for distribution.

Hybrid payroll service solutions let you pick and choose the functions you wish to outsource. For example, you can still process payroll on your computer but have an outside service print the checks and deliver them to your office. An increasingly popular payroll option is electronic funds transfer, which makes direct deposits of net pay to employee bank accounts. Most payroll services can also handle tax reporting and forms preparation requirements, which can be onerous after year-end.

At one time, there was a clear dividing line between payroll and personnel functions. Payroll handled the calculations of employee compensation payments, while personnel handled most of the related functions, including administration of benefits such as insurance and pension plans.

But some payroll processing services now say they can handle all of your payroll and personnel needs on an outsourced basis. They are usually marketed under a "human resource management" banner. They can administer pension plans, answer employee questions about insurance options, and handle other functions usually performed by an in-house personnel department. This can be a time and cost-saving option, if the service delivers what you require without making your employees feel like a mere cog in the immense wheel.

The payroll needs of your business may evolve over time. A small business with one office may find it perfectly feasible to print and distribute pay checks in-house. But after the business grows and adds sales people in half a dozen locations across the country, a direct deposit system will be a more efficient way of paying employees.

Similarly, a new manufacturing plant in a remote location may require someone located at the plant to enter employee hours worked into a payroll system. You’ll need to consider whether the plant payroll should be integrated with your current payroll system and how that might be best accomplished.