The accounting for payroll involves all aspects of paying compensation and benefits to employees. The outcome of this process is precise records regarding the expenses associated with all types of compensation, as well as timely payments to employees.

Though some systems that incorporate more or less automatic payroll systems may not include all of these steps, the general process flow will apply to most payroll systems:

Set up new employees. Have new employees fill out payroll-specific information as part of the hiring process, such as the W-4 form and medical insurance forms that may require payroll deductions. Set aside copies of this information in order to include it in the next payroll.

Collect timecard information. Salaried employees require no change in wages paid for each payroll, but you must collect and summarize information about the hours worked by non-exempt employees. This may involve having employees scan a badge through a computerized time clock.

Verify timecard information. Summarize the payroll information just collected and have supervisors verify that employees have correctly recorded their time.

Summarize wages due. Multiply the number of hours worked by the pay rate for each employee, also factoring in any overtime or shift differentials.

Enter employee changes. Employees may ask to have changes made to their paychecks, usually to the number of tax exemptions or pension withholdings. You may need to record much of this prior to calculating taxes, since it impacts the amount of wages to which taxes are applied.

Calculate taxes. Use tax tables to determine the amount of taxes to be withheld from employee gross pay.

Calculate wage deductions. There may be a number of additional deductions to take away from employee net income, including deductions for medical insurance, life insurance, garnishments, and union dues. You must also track the goal amounts for these deductions, so that you stop deducting once the goal totals are reached.

Deduct manual payments. If manual payments have already been made to employees, such as advances, then deduct these amounts from the remaining net pay.

Create a payroll register. Summarize the wage and deduction information for each employee in a payroll register, which you can then summarize to also create a journal entry to record the payroll. This document is automatically created by all payroll software packages.

Print paychecks. Print employee paychecks using the information in the payroll register. You normally itemize gross wages, deductions, and net pay in a remittance advice that accompanies the paycheck.

Pay by direct deposit. Notify your direct deposit processor of the amount of any direct deposit payments, and issue remittance advices to employees for these payments.

Issue paychecks. Have a paymaster issue paychecks to employees, requiring employee identification if there are a large number of employees.

Deposit withheld taxes. Deposit all withheld payroll taxes and employer matched taxes at a bank that is authorized to handle these transactions.

Payroll administration is one of the most important business processes your company performs, yet one of the most cumbersome and time-consuming daily activities. It doesn’t generate direct revenues, so keeping this process to a bare minimum in time and cost means savings and more efficiency to your business. This is why you need payroll software, so you can focus on income-generating strategies and daily core tasks.

Payroll management software can be classified by: deployment (cloud vs. enterprise), business size (small business vs. enterprise) and target market (general vs. industry-specific). There is another way to distinctly classify payroll software, one that may impact on your workflows.

Integrated payroll management system. Payroll, accounting and HRM have overlapping processes.; thus, often, payroll management is integrated as a module in accounting software, HRM or an organization-wide business system like ERP. It can be a standard feature or separately charged as an add-on. Integrated payroll management covers the core tasks like payroll processing, income tax calculations and paycheck printing.

Dedicated payroll management. These are standalone apps that go beyond core features of payroll and tax software with specialized functions as time-tracking & attendance,  customized reporting, benefits management and even a tax planner. A good dedicated payroll application should easily integrate with other HRM and accounting systems. This type of payroll system is popular among payroll services and small businesses.