Payroll processing is the process of periodically calculating gross pay,
taxes, voluntary deductions, and net pay for a company's employees.
Detailed salary, pay rate, and earnings-to-date information about each
employee is compiled from personnel and payroll files, allowing the
correct amount of income tax, social security tax, and other deductions
to be determined.
Until about 40 years ago, these calculations were performed manually
or with electronic calculators, but computers have largely automated
these calculations in recent decades. Nevertheless, with all of
the information that must be factored in and reported every pay period
for each employee, payroll processing is a complex and time-consuming
job that comes under the direction of the accounting department.
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In addition to deducting federal, state, and local taxes and sending them
to the correct government offices, businesses also need to calculate
Social Security and Medicare taxes, unemployment tax, and workers'
compensation. While individuals pay 50% of their social security
tax, their employer is required by law to pick up the other half.
Whereas Social Security and Medicare are flat rate taxes, the unemployment
tax rate can be reduced for employers who have a pattern of keeping
a stable work force. The unemployment tax program is a joint venture
between the United States federal government and the individual States, so
the employer pays part of the unemployment tax to the federal government
and another part to a particular state.
Today, payroll processing software is available to capture time clock
data, perform payroll calculations, produce payroll checks, generate
payroll reports, and submit the necessary information to federal, state,
and local tax authorities. In some cases, payroll software is
included in comprehensive accounting or human resources packages.
Some companies process their payroll internally, but the laws concerning
taxes, employee benefits, and deductions change from time to time, making
it difficult and expensive for companies to maintain their own payroll
software. So an increasing number of firms have opted to use
outsourced payroll and human resource solutions offered by companies
like ADP, Ceridian, and PayChex. With all of the various deductions
that must be monitored and calculated, payroll processing can be a
difficult, time-consuming, and challenging job. These payroll firms,
and other payroll services, can make it easier on the in-house payroll
department and ensure that paychecks are done correctly and on-time.
Some of these firms can handle a broad spectrum of employee administration
functions for large and smaller employers. In addition to payroll
and human resource services, they offer solutions in the areas of benefits
administration and tax filing as well as time and attendance tracking and
Service and support organization for the payroll industry.
The stated mission of APA is to support the Payroll Profession with
member benefits including certification, reference materials, payroll
training and networking. www.AmericanPayroll.org