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Payroll - More Than Just Paying Money

   By: Michael Russell

Payroll. If you ever worked at a company, large or small, the best day of the week or month, depending on company policy, was payday. For some, it's the only reason they even go to work but payday is more than just digging into a box and pulling out a fistful of money to give to the employees. Payroll management is actually a fairly complex process that can easily be screwed up at any one of various points along the way.

Payroll actually starts with the employee signing up with the company. At this time the employee fills out a W4 statement that indicates to the company one of possibly several options. For starters, it indicates how many deductions the employee wishes to claim in calculating his paycheck. The more deductions the less money that's taken out. Some employees claim zero deductions in order to have more money taken out now, so that later on when tax time comes they either pay less tax or might even get a refund.

Employees, at the time of employment, may also indicate if they want to have money taken out for stock options, IRAs, pension plans or a number of other items. Some of these may be mandatory, some optional.

Then of course there are other deductions that have to be accounted for in a person's paycheck. There is federal tax, state tax, disability tax, social security tax, and depending on where you live, local and other miscellaneous taxes. Some professions, like teachers, have union dues that have to be paid. The total number of deductions will of course vary from state to state and company to company.

After all this is done, the employee is of course given a pay rate, which can either be an hourly, weekly or a yearly rate, which would then be broken down into pay periods. Some companies pay weekly, some bimonthly and some monthly.

Finally, after all the deductions are accounted for, when the pay period arrives the employees need to be paid. Again, this is not done by reaching into a box and pulling out a wad of cash. With all the complicated calculations required to compute a person's pay, this usually becomes too much for any one person at a company to handle, unless it's a very small company. For this there are payroll processing services.

In the United States, probably the most popular payroll processing service is ADP, which has been in business for over 50 years. They were the first and are still the best. Basically what they do, and we'll go into more detail in a future article on ADP themselves, is take all the company information on each employee, do the necessary calculations and then cut a paycheck for each employee or if they choose, have the money deposited directly into their bank accounts. This assures the most accurate processing of each person's paycheck.

In the next article in this series we'll discuss ADP specifically, since they are the biggest and the best, and cover the services they offer in detail.

Michael Russell
Your Independent guide to Payroll

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