Here’s what you are going to learn about payroll management in this guide:

  1. What is Payroll Management
  2. Importance of Payroll Management
  3. Payroll Management Process
  4. Payroll Processing Stages
  5. Methods of Payroll Management
  6. Payroll Management System
  7. Payroll Applications

What is Payroll Management

Payroll is an important document that is used by organizations and companies to perform day to day staff management activities. It is a document that contains a list of all the employees of a company who receive remuneration of work carried out or services offered to that company. It provides a summary of the entire money paid to staff by a company within a specific time. A payroll provides the following functions.

  • It contains a company’s remuneration strategy, which may include bonuses, leaves, and deductions.
  • It provides a detailed payslip, which can be used for various uses. It also provides a detailed breakdown of salary or wage.
  • It is used for paying salaries or wages.
  • It is used to collate payroll-related inputs.
  • It is used to determine actual remuneration.

For effective management of financial activities, a company of more than a staff must possess a comprehensive payroll. The primary function of payroll is to assist a company in timely payment of staff wages and salaries. It also helps with other essential activities, such as income tax, unemployment tax, and social security.

In most cases, having a payroll is mandated by the state in which a company operates. Certain jurisdictions require that the company must keep payrolls within a specific timeframe.

Payroll management is the administration and management of staff financial reports, such as wages, salaries, deductions, bonuses, and other relevant financial records. It also involves a continuous review and update of the payroll database to ensure that the status quo is always captured with respect to the remuneration of staff.

Importance of Payroll Management

Maintaining a payroll by a company is extremely important for day-to-day activities and also for adherence to jurisdictional requirements. In most cases, companies maintain a payroll database via a payroll application software that is usually semi-automated and easy to use. The importance of payroll, owning, and managing payroll, is highlighted below.

  • In most cases, the payroll management process is a repetitive and annoying process, which can easily result in mistakes. Optimization of the process through the use of computers and software application minimizes the possibilities of such mistakes. Also, computers provide databases, which can easily be stored on storage devices and other remote online cloud storage systems, which can be accessed using login credentials. This provides an essential backup of payroll records in the event of a system failure or hardware damage.

This also provides a graphical representation of the company’s payroll, which is vital for financial assessments. In instances of wage increment, a simple calculation can provide the company with the full impact of such adjustment on the finances of the company.

  • Many companies spend a significant amount of time managing corporate and staff income taxes. Payroll management is crucial as it not only eases the organization and management of payroll but saves valuable time, which can be used for other critical corporate activities. Also, without proper management of the payroll database, accounting for relevant factors, which include overtime, vacations, and bonuses, can become quite tricky. Also, varying taxes and deductions may apply to different staff. Therefore, an application-based solution saves valuable time as editing of existing payroll is simplified and semi-automated.
  • In most cases, the security protocol for the payroll database is of high-quality. Staff data is always kept as confidential as possible, which translates to different levels of administrative rights and privileges for access to the payroll database. It also allows employees access to the breakdown of their remunerations.
  • Most modern payroll management systems are cost-effective as they are, in most cases, remote cloud solutions. A company only requires an active subscription to maintain the database. Payroll management solutions require the least amount of expensive hardware, which saves many resources. Also, a company can quickly expand or reduce their requirements.

Payroll Management Process

The payroll management process is what a company does in the process of administrating and implementing payroll functions. In this process, the business uses software applications to record employee details and manage salaries, track hours, manage to leave, bonuses, and deductions among other functions of payroll management.

The process also includes complying with legal requirements related to employee payments, including income tax.

The payroll management process also includes putting in place a mechanism and system to redress employee grievances.

The payroll process is integral to companies establishing integrity and financial stability. Where there is poor payroll management, organizations open themselves to potential fraud.

Payroll Management Process Stages

The process of payroll management requires careful and meticulous planning. Continuous review and monitoring of changes to details relating to specific employees concerning payments, deductions, and other financial payments. This payroll management process consists of three distinct phases, which are before, during, and after the payroll management activity.

1. Before payroll processing

Various factors are considered, which include bonuses, leaves, and other benefits. The determination of these factors is based on the approval of the decision-makers of the company. Payroll generated in small companies is affected by fewer factors. With more prominent companies, the payrolls usually require software applications that ease the entire process. In both cases, all data processed must abide by company policy and procedure.

2. During payroll processing

Verified data is used. This stage involves calculations, taxes, bonuses, and deductions. Validation and verification of all amounts are done to ensure accuracy and avoid mistakes.

3. After payroll processing

All deductions are made here. The total funds budgeted on the payroll are disbursed through the relevant payment channels.

Methods of Payroll Management

There are three basic payroll methods which are Excel-based, outsourced, and payroll management software.


This is the cheapest option for payroll management. Start-ups and smaller companies mostly use this approach. This method involves developing a payroll management template, which allows for calculations and the use of mathematical formulae on Excel spreadsheets. The downside of this method is that it is challenging to manage and prone to errors.


This is an option for companies that have the resources. A company contracts a third-party payroll management service provider. For every cycle of payment, the company compiles and sends out an updated payment schedule to the payroll consultant for processing. The payroll consultant is responsible for reviewing and updating all payments and deductions due to each employee. Although this option simplifies the work of the company, however, the need for confidentiality may prevent it from outsourcing its payroll management.

Payroll management software

This provides a simplified option for a company. There are several reliable applications for payroll management to choose from. Such software applications usually provide a template for the input of the employee details and relevant input factors. The size and composition of the company determine the best type of payroll software that is suitable for day-to-day operations.

Other payroll methods

There are different types of payroll methods available to businesses – direct deposits, checks (written or printed) cash, or payroll cards. While businesses can choose from these types of payroll methods, employees get paid on three specific pay rates:

  • Hourly wages
  • Base salaries
  • Commission pay

Payroll Management System

A payroll management system is a software tool that provides for the automation of payroll management. The software helps a business or organization to manage the salaries, wages, tax deductions, insurance premiums, and other aspects of remuneration of employees.

Companies also use payroll management software to track employee time off or accrual of vacation leaves. You can access the software as standalone apps or as part of the HR software package.

Benefits of payroll management software

  • Payroll software is useful for compliance purposes- staying up to date with state and federal laws
  • Automation helps speed up payroll processing and makes it easy to generate reports e.g. for tax filing purposes. Payroll software will generate 1099-MISCs, 1099, and W2s among others that are very vital for filing taxes.
  • Privacy of employee and company financial data, which will likely not be the case when you outsource to third party providers
  • Portals can offer employees access to their payroll data and for self-service processing

Let’s look at two of the benefits: taxation reports and a self-service portal for employees.

Preparing tax forms can be a nightmare to your HR. With payroll software, it auto-generates all tax forms for each employee in your organization. A payroll system helps to calculate tax even with different rates and from different states. The system updates automatically when tax rates change keeping your HR department on the frontline.

Large companies that have a large number of employees need a payroll management system that they can access through a self-service option.

Human Resource persons are relieved of the duty to inform the employees of their details. Each staff can use the self-service option to check the information they need such as time-off, benefits, and deductions among others. If they need changes made on the system, they do so online without necessarily visiting the HR office.

The fact there is a self-service option can result in wrong data entry.  Once new data different from the previous paychecks is entered, the system sends an alert to the HR department that can then check and correct the error if necessary. This ensures no discrepancy can go undetected.

Payroll Applications

Most businesses across the globe have integrated payroll management software, streamlining payroll processes, for compliance, and improving tax filing as well as securing the payroll system.

Payroll applications or Payroll management solutions allow many small and medium-sized companies to handle their payroll management needs without having to outsource to a third-party.

Here are the leading payroll management solutions vendors in the US.

  • ADP
  • Gusto
  • Paychex
  • Sage 50cloud
  • Paycor
  • EPAY Systems
  • OnPay
  • Patriot Software
  • Xero
  • Toast Payroll
  • Zoho Payroll

What to consider when choosing payroll management software

Ideally, every business should have a payroll management system. However, each business needs will determine the kind of payroll software that best serves it. The following are guiding principles when you want to choose payroll management software.

Reputation and trustworthiness

Get to know your preferred service providers from other companies using their payroll services. Reviews about them also provide quality information. Request if the software providers can also offer a free demo on how to use their system to see if it’s ideal for your business needs.


A companies’ payroll management system contains very sensitive information about employees and the company. This data should be protected and handled by trustworthy persons only. When choosing a payroll software vendor, make sure it has not had security issues before and that the vendors are fully responsible for any security breaches.

Your business size

Small and mid-sized businesses may need a payroll system that performs basic functions as compared to large companies that need a detailed one. Moreover, budgeting for the ideal system is key in your business. If you are a small business, budget for affordable software. A large company needs to invest heavily in good and secure software.

Software reports and back up

As a company, you need to have access to the payroll reports when need be. Tye system should be able to provide manual update options in case you need to correct some errors. Systems at times fail and this requires proper back up of all payroll information in the system.


You need to purchase software that can work together with the other systems in your business. The software should also be flexible enough to accommodate growth changes in your business. It should be easy to integrate into the other financial software you might be using.


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