Payroll is the money a company pays its workers for a specific time or date. Typically, the accounting or human resources team manages it, but in small businesses, the owner or a partner might take care of it. More and more, companies are hiring outside firms to manage payroll tasks like processing paychecks, handling employee benefits, insurance, and tax deductions.
Several payroll fintech companies like Atomic, Bitwage, Finch, Pinwheel, and Wagestream are using technology to make payroll easier. Their solutions allow for faster and more convenient payments to employees, along with digital payroll documents and advanced services needed in the gig and outsourcing economy.
It can mean the list of employees in a company and how much each one gets paid. It is a big cost for many businesses and is usually tax-deductible. This expense can be taken off the total income to lower the taxable income of the company.
Payroll can change from one pay period to the next due to factors like overtime, sick leave, and other variables.
Learn more about Payroll
It’s how a company pays its workers. It involves keeping track of hours worked, figuring out how much each employee earns, and sending payments through direct deposit or checks. Companies also need to handle accounting tasks to log payroll details, taxes taken out, bonuses, extra pay for overtime, sick leave, and vacation pay. They must set aside and record the money owed to the government for Medicare, Social Security, and unemployment taxes.
A lot of businesses use software to handle payroll. Employees enter their hours via an API, and then their payments are processed and sent to their bank accounts.
Many medium and large companies use payroll services to make the process easier. Employers keep track of how many hours each worker puts in and send this data to the payroll service. The service figures out how much money the employee should get based on their pay rate and hours or weeks worked. It also takes out taxes and other deductions before paying the employees. You should read payroll tax to know more about this topic.
Considerations
Companies that make $500,000 or more in sales each year must follow the Fair Labor Standards Act (FLSA) from 1938. This U.S. law helps protect workers from unfair pay practices. The FLSA includes rules about minimum wage, overtime pay, and restrictions on child labor. It also defines when workers are on duty and when they qualify for overtime pay.
The law states that any hours worked over 40 in a week must be paid at one and a half times the normal hourly wage. Certain employees are not covered by the FLSA, and the law does not apply to independent contractors or volunteers since they are not classified as employees.
Some hourly workers do not fall under the FLSA but are still regulated by other laws. Railroad workers are managed by the Railway Labor Act, while truck drivers are regulated by the Motor Carriers Act.
The FLSA explains how to handle jobs that mainly rely on tips. Employers must pay tipped workers at least the minimum wage unless those workers earn over $30 a month in tips.
Conclusion
Managing payroll is a complicated and lengthy task that must follow strict federal and state laws. It needs careful record-keeping and attention to detail. Many small businesses use cloud-based software for payroll. Some companies prefer to outsource payroll tasks or use an integrated ERP system to handle both accounting and payroll.