How Does Payroll Work? A Detailed Guide

You’ve started your new business like hundreds of thousands of other hopeful new business owners, you’re excited, you’re hiring employees—but wait. How do you pay these people?

Cash under the table isn’t an option. You want your business to be on the up and up, so what do you do?

How does payroll work, and how do you take care of it? Continue reading this article to learn how payroll works and what the payroll process is.

Getting Started

When you employ workers, it is your job to make sure they are paid what they are owed when they are owed it. Depending on what industry you work in, you might need more privacy-sensitive solutions than others.

For instance, if you work in the government arena, you might need government human resources and other tools to help you stay compliant. Make sure to check if there are any specific laws around your profession before moving forward.

Using Payroll Software

Unless you want to take care of everything manually, it is a good idea to use payroll software. When you use payroll software, you can automate the payroll process.

If you’re asking, “What is the payroll process?” It’s pretty simple.

The payroll process usually goes like this:

  • Gather time information
  • Managing benefits and deductions
  • Paying out the right amount for the right pay period

While that might sound pretty simple, you still need the payroll software to make your life so much easier.

When you’re choosing the right software to use, make sure it’s one that has all the features you need but not so many that you feel overwhelmed. If you don’t need all the bells and whistles, you might opt to work with software that is more for beginners.

Most of the simple software is less expensive as well, so that can be a big benefit for you.

Why You Need to Set Up a Payroll System

Even if you opt-out of using software, you still need to have a system in place. Winging it when it comes to paying your employees is not a good idea.

Your system should include a way to accurately track your employee’s pay. If they are hourly employees, then you need to have a way to track their hours. If they are salary employees, it might not be such a big deal, but it is still good to know.

Tracking alone can be an annoyance, but the next part is where the real work comes in. You have to know both state and federal taxes for that specific person. You need to ensure they are getting taxes taken out at the right rate for each paycheck.

The reason you need a system is that without a system, it’s likely you’re going to experience some hiccups and possibly pay your employees improperly. No one likes that.

Planning for Payroll Solution Costs

If you’re worried about how much a payroll solution is going to cost your business, the good news is that there are a lot of options out there. That means you don’t have to put out thousands of dollars if you’re a small business, or you don’t have to use a rinky-dink system if you’re a robust enterprise.

Know how much you can afford and review the solutions that are within your budget. You’re likely to find there are more options than you knew, and many of them will work perfectly for what you need.

Many solutions charge a base fee and then go on to charge fees based on activity. This is why many employers opt to pay once a month or bi-weekly. While this can be beneficial when it comes to reducing payroll costs, it can make things hard for your employees.

Most people don’t have the best budgeting skills, and by the end of the month, they are living on a wish and a prayer. Most people do best if you pay them weekly.

Picking the Right Solution for You

Once you’ve looked over your company’s needs, it’s time to make a decision.

Some of the things you might have looked at were:

  • Necessary features
  • Cost structure
  • Integration possibilities
  • Employee self-service options

There may be other things that your company needs specifically, so make sure to consider those as well as the most widely-known features that are important.

Once you have a list of options you’re considering, it can be helpful to speak to your peers. Who do they use, and how has it worked for them?

While reading online reviews can be helpful, it’s even better if you get information from someone you know and trust. If you don’t know anyone that uses these payroll solutions, you could try reaching out to a local business networking group of the chamber of commerce.

Even LinkedIn can be a good way to connect with people that might have the information you need. Most people on the platform are more than happy to share their experiences with other business professionals.

How Does Payroll Work? Now You Know!

Now that you know the answer to how does payroll work, you can start building your business and know you have everything in place to keep your workers paid.

Learning how payroll works is an important part of your business and shouldn’t be taken lightly. Just ask your employees.

Do you need more help with your business and other important topics? Continue through our blog to get the help you need.