Payment Role: What It Is For, How To Do It And Example

The pay role is the term that is commonly used to refer to the records of wages and salaries, bonuses and withheld taxes that a company must pay to its employees during a specified period of time or on a specific date. It is also known as payroll.

This term can equally refer to the total amount of money a company pays to its employees during each pay period or to the process of calculating and distributing wages and taxes. It is usually managed by the accounting department of a company.

Payment role

Small business payroll can be handled directly by the owner or an associated third party. The pay role can vary from one pay period to another due to variations that its components may have, such as overtime, bonuses, rest payments and others.

If a company has employees, it will have to perform the payment role continuously and on time; There’s no way to avoid it.

What is it for?

The pay role, in the sense of money paid to employees, plays an important role in a company for several reasons:

– Represents a significant expense for companies and is the main component of labor cost. The cost of labor varies by type of industry. Companies from different industries should be compared with this in mind.

– From an accounting perspective, the role of payment is crucial because, both this and the taxes reflected, affect the net profits of the companies and are subject to laws and regulations.

Full compliance

Employee motivation demands that the pay role be paid in a timely and accurate manner. Employees are very sensitive to errors and irregularities in the pay role.

Calculations must always be accurate, paychecks must be printed on time, new and departing employees must be added or removed from various processes, and taxes must be remitted to the proper authorities on time and in the correct amount.

Structure

Employee information

Certain information should be collected from each employee showing their income tax withholdings, along with their name, address, phone numbers, and social security number.

Hours worked

If you have hourly employees, the hours they work must be tracked. This will ensure that employees are paid the proper amount.

Free time

The amount of time employees leave work for vacations, sick leave, leave, and holidays should be tracked. How is the payment for rest in the company? It is important to know if there is a policy that indicates how long employees are allowed to be absent.

Salaries and wages

Salary is a fixed amount that is paid to an employee. Typically, an employee receives an annual salary which is then divided by the number of pay periods in the year.

If wages are paid to an employee based on hours worked, a specific hourly rate is set for each employee. To calculate the total salary of an employee, the pay rate is multiplied by the number of hours the employee works.

Overtime pay

All non-exempt employees must receive overtime pay; this includes both hourly and salaried employees. Overtime implies that the employee must work more hours than legally stipulated.

Supplemental benefits

They are another type of compensation, such as educational assistance, health insurance, and retirement plans.

Other payments

You can choose to pay employees sales commissions or extra pay.

Deductions

A deduction is money that is deducted from an employee’s total salary.

Payroll taxes

For example, income tax, unemployment tax, social security tax and all other taxes contemplated by law.

The amount withheld from each employee will vary based on their total income and the amount of withholdings they have.

Seizures

A garnishment is a court-ordered deduction. It is used to pay off employee debts, such as unpaid taxes, delinquent loans, and child support.

Net and gross pay

The employee’s gross and net salary must be shown on the pay role receipt. Gross salary is the total salary of an employee. The income tax form asks for gross wages.

Net pay is the employee’s final salary after deducting all deductions. Banks and other lenders generally want to know your take-home pay.

How to do it?

Manual calculation

It can work if you have few employees. Only a few items are needed to set up this system for record keeping.

Wages and deductions are calculated manually, which can be risky because pay role calculations can be complex.

As there is no software to assist in the computations, each computation must be verified before paying the employees. It is easy and inexpensive to set up.

Automated system

It can be a standalone software or integrated with human resources and accounting systems. Employee data and wages, hours worked, pay rate, and tax withholdings must be entered into the system.

The software calculates the amount to pay based on the data entered and allows you to pay by checks, transfer or payment cards. Hours can be entered with an automated time tracking system.

The software withholds taxes from employees’ wages and calculates complex items such as fringe benefits and deductions. Improves the efficiency and precision of the manual system.

Paying role external service

For an agreed fee, pay role tasks are outsourced to a third party. Depending on the needs, the provider processes all or only manages some aspects of the payment role.

Instead of buying software , you use the vendor’s system. You can save time and money as the provider usually has experts in this area.

However, the supplier’s work must be verified, as they remain responsible for mistakes made.

Example

Company ABC pays a regular rate of $ 7.25 per hour. If you work more than 8 hours during the week, you pay 1.5 times the regular rate. For working weekends and holidays, you pay double the regular rate.

Juan Pérez, a mechanic, worked the following hours during the week:

-40 regular hours.

-8 overtime hours during the week.

-8 hours on the weekend.

Your salary would be calculated as follows:

Payment role

The ABC company pays Jaime Rodríguez, its vice president of operations, an annual salary of $ 150,000. In the weekly pay role, the company gave him the following receipt:

Payment role

References

  1. Wikipedia, the free encyclopedia (2018). Payroll. Taken from: en.wikipedia.org.
  2. Mike Kappel (2015). What is Payroll? – Definition and Components. Payroll Blog
  3. Payroll Training, Tips, and News. Taken from: patriotsoftware.com.
  4. Payroll. Taken from: investopedia.com.
  5. Investing Answers (2018). Payroll. Taken from: com.
  6. Simplestudies (2010). Payroll accounting and examples. Taken from: simplestudies.com.
  7. Grace Ferguson (2018). Example of a Payroll System. Small Business – Chron.com. smallbusiness.chron.com.

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