View source for Payroll

{{Short description|Record of money paid or due to employees}}
{{for multi|financial firms|Payroll service bureau|other uses}}
{{Globalize|article|US|date=October 2021}}
[[File: John Lewis Payslip.png|thumb|right|Handling payroll typically involves sending out [[payslip]]s to employees.]]
A '''payroll''' is a list of [[employment|employee]]s of a [[company]] who are entitled to compensation and other work benefits, along with the amounts each should receive.<ref>{{Cite web|url=https://www.merriam-webster.com/dictionary/payroll|title=Definition of PAYROLL|website=www.merriam-webster.com|language=en|access-date=2019-11-04}}</ref> The term can also refer to a company's records of past employee payments, including [[wage]]s, [[Salary|salaries]], [[Bonus payment|bonuses]], and [[Withholding tax|withheld taxes]], or to the department responsible for managing [[Remuneration|compensation]].<ref>{{cite book|url=https://books.google.com/books?id=eunqTszlDcEC|title=Essentials of Payroll: Management and Accounting|last1=Bragg|first1=Steven M.|date=2003|publisher=John Wiley & Sons|isbn=0-471-45614-4|access-date=4 November 2017}}</ref> A company may handle all aspects of the payroll process in-house or can [[outsource]] aspects to a payroll processing company.

Payroll in the U.S. is subject to federal, state and local regulations including [[Fair Labor Standards Act of 1938|employee exemptions]], [[Records management|record keeping]], and [[Taxation in the United States|tax requirements]].<ref>{{Cite web|url=https://smallbusiness.chron.com/employee-payroll-laws-3590.html|title=Employee Payroll Laws|website=smallbusiness.chron.com|language=en|access-date=2019-11-05}}</ref>

In recent years, there has been a significant shift towards cloud-based payroll solutions. These platforms offer advantages such as cost savings, scalability, and real-time data access, making them increasingly popular among businesses of all sizes. According to a report by USD Analytics, the global cloud-based payroll software market is projected to grow from $10.8 billion in 2023 to $20.5 billion by 2030, reflecting a compound annual growth rate (CAGR) of 9.6%.<ref>{{Cite web |title=Cloud-Based Payroll Software Market Size, Share, Trends, Growth Outlook Demand and Growth Insights 2023 |url=https://www.usdanalytics.com/industry-reports/cloud-based-payroll-software-market |access-date=2024-11-21 |website=www.usdanalytics.com}}</ref>

==Frequency==
Companies typically process payroll at regular intervals. This interval varies from company to company and may differ within the company for different types of employee.

According to research conducted in February 2022 by the [[United States Department of Labor|U.S. Department of Labor]] and the [[Bureau of Labor Statistics]], the four most common pay frequencies in the United States were:<ref name="bls">{{Cite web|url=https://www.bls.gov/ces/publications/length-pay-period.htm|title=Length of pay periods in the Current Employment Statistics survey|website=www.bls.gov|language=en-us|access-date=2022-12-23}}</ref>

* Weekly — 31.8% — Fifty-two 40-hour pay periods per year and include one 40 hour work week for overtime calculations.
* Biweekly — 45.7% — Twenty-six 80-hour pay periods per year, consisting of two 40 hour work weeks for overtime calculations.
* Semi-monthly — 18.0% — Twenty-four pay periods per year with two pay dates per month. Compensation is commonly paid on either the 1st and the 15th day of the month or the 15th and the last day of the month and consists of 86.67 hours per pay period.
* Monthly — 4.4% — Twelve pay periods per year with a monthly payment date. Each monthly payroll consists of 173.33 hours.

This frequency changes based on the establishment size, or the maximum number of employees within the business over the previous 12 months.<ref name="bls" />

{| class="wikitable sortable"
|+ Frequency of pay periods by size class in the CES survey, February 2022
|-
! Size !! Weekly !! Biweekly !! Semimonthly !! Monthly
|-
| 1-9 || 31.1% || 36.0% || 23.0% || 10.0%
|-
| 10-19 || 33.4% || 45.9% || 20.1% || 0.6%
|-
| 20-49 || 40.5% || 44.1% || 13.4% || 2.1%
|-
| 50-99 || 29.7% || 54.4% || 14.7% || 1.2%
|-
| 100-249 || 29.3% || 56.4% || 12.8% || 1.5%
|-
| 250-499 || 23.8% || 64.0% || 12.0% || 0.3%
|-
| 500-999 || 22.8% || 63.9% || 12.8% || 0.5%
|-
| 1000+ || 21.6% || 67.6% || 9.8% || 0.9%
|}

==Components==

=== Gross pay ===
Gross pay, also known as [[gross income]], is the total payment that an employee earns before any deductions or taxes are taken out.<ref name=":2">{{Cite web|url=http://www.businessdictionary.com/definition/gross-pay.html|title=Which of your friends needs to learn this term?|website=BusinessDictionary.com|language=en|access-date=2019-11-09|archive-date=2019-11-09|archive-url=https://web.archive.org/web/20191109041927/http://www.businessdictionary.com/definition/gross-pay.html}}</ref> For employees that are hourly, gross pay is calculated when the rate of hourly pay is multiplied by the total number of regular hours worked. If the employee has overtime hours, these are multiplied by the overtime rate of pay, and the two amounts are added together.<ref>{{Cite web|url=https://www.thebalancesmb.com/what-is-gross-pay-and-how-is-it-calculated-398696|title=How to Calculate Gross Pay for All of Your Employees|last=Murray|first=Jean|website=The Balance Small Business|language=en|access-date=2019-11-14}}</ref> Also included in gross pay is any other type of earnings that an employee may have. These may include [[holiday pay]], vacation or [[sick pay]], bonuses, and any miscellaneous pay that the employee may receive.

=== Deductions ===
There are a wide array of voluntary deductions that can be taken out of an employee's gross pay, some of which are taken out before taxes and some being taken out after taxes.
Pre-tax deductions are deductions that are taken out of an employee's gross pay amount before it is subject to tax.<ref>{{cite web |title=GAP 101.4, Payroll Deductions |url=https://finance.duke.edu/accounting/gap/p101-4 |website=Duke Financial Services Accounting |publisher=Duke University |access-date=11 October 2021}}</ref> and could include health, dental, or life insurance, deductions for certain [[individual retirement account|retirement accounts]], or deductions for [[flexible spending account|FSA]] or [[health savings account|HSA]] accounts.

After-tax deductions are deductions that are occur after taxes have been taken out of an employee's pay.<ref name=hawkins>{{cite journal |last1=Hawkins |first1=Jim |title=Earned Wage Access and the End of Payday Lending |journal=Boston University Law Journal |date=2017 |volume=101 |page=705}}</ref>

=== Reimbursements ===
Payroll components may include [[reimbursement]]s for some expenses that an employee bears on behalf of the company. In many cases this helps an employee save taxes. An employee typically has to submit some bills to validate the actual amounts. This has to then be approved typically by their manager and finance team. Some common reimbursement components in Indian Payroll include [[Telecommunications billing|Telephone Bills]], Driver Salary, Fuel Reimbursements etc.<ref>{{Cite web |title=Employees: Benefits allowable |url=https://incometaxindia.gov.in/charts%20%20tables/list_of_benefits_available_to_a_salaried_person_final.htm |access-date=2022-11-10 |website=incometaxindia.gov.in}}</ref>

=== Taxes ===
Various levels of government require employers to withhold various types of [[income tax]] and [[payroll tax]].<ref>{{Cite web|url=https://www.wallstreetmojo.com/income-tax-vs-payroll-tax/|title=Income Tax vs Payroll Tax {{!}} Top 5 Differences (with infographics)|date=2018-06-16|website=Wallstreet Mojo|language=en-US|access-date=2019-11-05}}</ref> In the United States, payroll taxes are used to support [[Social Security (United States)|Social Security]] and [[Medicare (United States)|Medicare]] costs while [[Income tax in the United States|income taxes]] are used for other [[Taxation in the United States|federal]] and [[State income tax|state]] programs.<ref>{{Cite web|url=http://budgeting.thenest.com/difference-between-payroll-tax-income-tax-25574.html|title=What Is the Difference Between Payroll Tax & Income Tax?|date=November 29, 2018|first=Catie|last=Watson|website=budgeting.thenest.com|language=en|access-date=2019-11-07}}</ref> In Canada, payroll taxes are used to support the government's Pension Plan (CPP or QPP) and Employment Insurance program (EI) while income taxes are used to fund public healthcare and other federal and province/territory programs.

=== Wage garnishments ===
A wage [[garnishment]] is a court-ordered method of collecting overdue debts that require employers to withhold money from employee wages and then send it directly to the creditor.<ref>{{cite journal |last1=Jablonski |first1=James A. |title=Wage Garnishment as a Collection Device |journal=Wisconsin Law Review |date=1967 |page=759}}</ref> Wage garnishments are post-tax deductions, meaning that these mandatory withholdings do not lower an employee's taxable income.<ref>{{cite journal |last1=Catherine |first1=Sylvain |last2=Yannelis |first2=Constantine |title=The Distributional Effects of Student Loan Forgiveness |date=December 2020 |article-number=w28175 |doi=10.3386/w28175|s2cid=229448445 |doi-access=free }}</ref> Unpaid debts that may result in wage garnishments include credit card bills and medical bills, child support and alimony, federal student loans, and tax levies. Each of these garnishments may have different limit on the amount that may be deducted.<ref>{{cite journal |last1=Culp |first1=Marilyn E. |last2=Lindquist |first2=Deanna R. |last3=Williams |first3=Chaton T. |last4=Lee |first4=Tamila V. |last5=Rice |first5=Charles M. |date=Spring 2000 |title=A guide through the garnishment jungle |url=https://www.academia.edu/6028977/A_guide_through_the_garnishment_jungle |journal=Employment Relations Today |publisher=John Wiley & Sons |page=121}}{{cbignore|bot=medic}}</ref>

=== Net pay ===

Net pay is the total amount that an employee receives after all required and voluntary deductions are taken out.<ref>{{Cite web|url=https://www.thebalancecareers.com/what-is-net-pay-1918196|title=The Difference Between Gross Pay and Net Pay|last=Heathfield|first=Susan M.|website=The Balance Careers|language=en|access-date=2019-12-03}}</ref>

==Outsourcing==
Businesses may decide to outsource their payroll functions to an outsourcing service like a [[Payroll service bureau]] or a fully managed payroll service. These can normally reduce the costs involved in having payroll trained employees in-house as well as the costs of systems and software needed to process a payroll. Where this may reduce the cost for some companies many will foot a bigger bill to outsource their payroll if they have a specially designed payroll program or payouts for their employees.{{citation needed|date=December 2019}}<ref>{{Cite web |last=Anna |first=Beatrice |date=April 2022 |title=Payroll software in Singapore |url=https://quickhr.co/features/payroll |website=QuickHR}}</ref> In many countries, business payrolls are complicated in that [[Payroll tax|taxes]] must be filed consistently and accurately to applicable regulatory agencies. For example, restaurant payrolls which typically include [[Tip (gratuity)|tip]] calculations, deductions, garnishments, and other variables, can be difficult to manage especially for new or small business owners. Another reason is that company leaders may lack the time to manage payroll tasks directly.<ref>{{Cite web |date=2022-02-17 |title=Miért fontos a bérszámfejtés, és mivel foglalkozik a bérszámfejtő? • Ertl Mónika |url=https://ertlmonika.hu/miert-fontos-a-berszamfejtes-es-mivel-foglalkozik-a-berszamfejto/ |access-date=2022-04-28 |language=hu}}</ref>

In the UK, payroll bureaus will deal with all HM Revenue & Customs inquiries and deal with employee's queries. Payroll bureaus also produce reports for the businesses' account department and payslips for the employees and can also make the payments to the employees if required. As of 6 April 2016, umbrella companies are no longer able to offset travel and subsistence expenses and if they do, they will be deemed liable to reimburse HMRC any tax relief obtained. Furthermore, recruitment companies and clients may be potentially liable for the unpaid tax.<ref>{{cite web|title=All change for Umbrella Companies from April 2016|url=http://www.fcsa.org.uk/resources/technical-briefings/all-change-for-umbrella-companies-from-april-2016/|website=FCSA|date=22 December 2015|publisher=The Freelancer & Contractor Services Association|access-date=4 November 2017}}</ref>

Another reason many businesses outsource is because of the ever-increasing complexity of payroll legislation. Annual changes in tax codes, ''Pay as you earn'' ([[PAYE]]) and [[National Insurance]] bands, as well as statutory payments and deductions having to go through the payroll, often mean there is a lot to keep abreast of to maintain compliance with the current legislation.

On the other hand, businesses may also decide to utilize payroll software to supplement the efforts of a payroll accountant or office instead of hiring more payroll specialists or outsourcing to a payroll company. Payroll software bases its calculation on entered rate, approved data obtained from other integrated tools like the electronic [[Time clock|Bundy clock]], and other essential digital HR tools.

==See also==
* [[Payroll automation]]

==References==
{{Reflist}}

==External links==
{{commons category}}
{{Wiktionary}}

*[https://www.irs.gov/publications/p15/index.html IRS Publication 15 (2010)(Circular E) Employer's Tax Guide ]
*[https://www.bls.gov/ United States Bureau of Labor Statistics ]

{{Aspects of jobs}}
{{Employment}}

[[Category:Payroll| ]]
[[Category:Expense]]
[[Category:Employment compensation]]