What is Payroll ? : Best Meaning, Definition, Purpose, Top 7 Steps of Payroll

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Payroll is the process of providing compensation to employees for their efforts on behalf of a business. It is typically handled by either the accounting department or the human resources department. Many organizations now outsource the bulk of their payroll processing to a third party that specializes in this activity.


Payroll is defined as the total of all compensation an employer must pay to their employees for a set period of time or on a specified date. It can also be defined as providing compensation to employees for the work they perform on behalf of their organizations, such as through their employer’s accounts.

Purpose of Payroll 

The purpose of payroll is to accurately process and pay salaries, keep their morale and trust high and help reduce costs to the company. One mistake and the range of repercussions could vary from an unhappy employee to heavy losses, often to the tune of crores of rupees.

Top 7 Steps of Payroll 

Step 1: Collecting tax information from employees

The first step in payroll processing is to gather necessary tax information from your employees. To verify employee eligibility for U.S. workers, employers are required to complete and file Form I-9. For this process, employees must present appropriate identification to the employer prior to commencing a new role.

Step 2: Create a records management process

A simple way to manage all these moving parts is to use employee records management. Employee records serve as the honest source for everything from salaries to deductions. If the information on an employee’s file is incorrect, it can lead to incorrect payroll calculation.

Step 3: Define a pay schedule

Now that your employee information is accurate and up to date, it’s time to determine how often you’d like to deliver to your workforce. We’ve found that biweekly, biweekly or monthly pay periods are typical for businesses. However, regardless of the frequency you choose, it’s important that you communicate your payment schedule to your employees so they know when they’ll be paid.

Step 4: Time Tracking and Timekeeping

For efficient payroll processing, consider offering a variety of time recording options to your employees. Options such as time cards, timesheets, and mobile apps meet the needs of all types of workforces, along with the ability to clock time across locations, time zones, and project. This type of detailed timekeeping makes it easier for employees to stay accountable.

Step 5: Calculating deductions

Now that you have time and attendance tracking in place, the next step in your payroll process is to calculate deductions. To do this, you first need to understand what the different types of deductions are.

Step 6: Pay your employees

Now that you’ve calculated your employees’ home wages, it’s time to start managing payroll. Whether employees prefer direct deposit, payment cards, or pre-printed checks, it’s important to ensure employee compensation is accurate and timely. Depending on your payroll frequency, be sure to account for holidays when processing payroll.

Step 7: Pay taxes and return payroll

Once payroll has been processed, the employer still has work to do. Employers must send withheld payroll taxes to the appropriate government agencies. You must also pay your employer’s share of payroll taxes on Form 941. This quarterly federal income tax return reports the employer’s federal income tax and FICA tax withheld for a calendar quarter.

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