What are Payroll? Following are the definitions, components, functions and processes

What is payroll? Payroll or payroll processing is one of the most tedious jobs every month for the HR department in any company.

While employees put in the hard work and it pays off in the end, employees have insight into their performance based on what they earn. So, what is payroll and why are organizations today so much more concerned about this operation?

Let’s find out.

Table Of Contents

1 What is Payroll?
2 Payroll Component
2.1 Gross wages
2.2 Benefits
2.3 Insurance
2.4 Tax
3 Importance of Payroll
3.1 For Business
3.1.1 1. Attracting New Talent
3.1.2 2. Legal Liability
3.1.3 3. Reducing Tax
3.2 For Top Management
3.2.1 1. Assists in Comparing Performance
3.2.2 2. Easy Follow-up of Plans and Policies
3.3 For Employees
3.3.1 1. Motivation
3.3.2 2. Less Competition, More Coordination
3.4 For Society
3.4.1 1. Wise Use of Resources
3.4.2 2. Promoting the Duty Cycle
4 Proses Payroll
4.1 Before Payroll Process
4.1.1 Identifying Payroll-Related Policies
4.1.2 Obtaining Information
4.1.3 Last-Minute Check
4.2 During Payroll Process
4.2.1 Calculation of Final Amount
4.3 After Payroll
4.3.1 Legal Regulation
4.3.2 Creating and Saving Notes
4.3.3 Bank Reconciliation
4.3.4 Assessing Employee Performance
5 Payroll Management System
5.1 Save Time
5.2 Managing All Information
5.3 Economical
5.4 Keeping Confidentiality
5.5 Optimal Utilization of Resources

What is Payroll?

Payroll is an instrument that aims to ensure a transparent channel of payment of wages to employees of a company. Accounting Pro What is Payroll?

Technically, payroll consists of a list of all company employees who are eligible for remuneration and other additional benefits.

Sometimes certain companies or businesses manage their payroll by outsourcing them and others prefer to do it themselves.

Payroll Component

Payroll considers various factors for each employee. This includes:

gross wages

Gross wage is the total amount earned by an employee over a certain period of time. This includes all part-time payments, bonus amounts, paid leave, etc.


While some of these benefits are deducted from the employee’s salary, most are also paid by the company. All of these adjustments are made in the payroll to determine gross wages. Some of these benefits include:

  • Travel allowance
  • Child education allowance
  • Medical benefits
  • Performance bonuses


Payroll also determines the medical insurance provided to the employee and the final gross salary after deducting the amount for that purpose.


Payroll also makes consideration for state taxes or income taxes from an employee’s gross wages.

Apart from all the above factors, the time spent by the employees is also calculated before determining the final income.

Calculating salary may sound annoying to some people. However, payroll is just as important for the company as for the employees. Don’t believe? Let us discuss some of the reasons for this statement.

Importance of Payroll

Employees are the foundation of a successful business. This reason may be enough to know why payroll is important in business. However, let’s talk about another reason.

For business

1. Attract New Talent

No one wants to be part of an organization that doesn’t make payments on time. On the other hand, fast payments and other benefits can increase the quality of staff and the dedication of existing staff.

2. Legal Liability

The illegal actions of a company can injure the reputation of the business itself. Therefore, it is important to manage payroll to avoid any legal repercussions.

3. Reduce Taxes

If the company manages to make all the adjustments correctly when calculating salaries, it can help reduce state taxes.

For Top Management

1. Helps In Comparing Performance

Payroll is important for top management as it helps in detailed comparison of human resources. This comparison helps improve overall performance gradually.

2. Easy Follow-up of Plans and Policies

If top management fails to consider the financial health of its employees; then there is no opportunity to follow up on other plans formulated by them.

For Employees

1. Increased Motivation

Payroll aids in boosting employee morale by continuously helping him compare and evaluate his performance quantitatively. This comparison can help in the steady growth and development of potential employees.

2. Less Competition, More Coordination

Chaos in an organization is the result of unfair competition and jealousy among employees. With the existence of a uniform code for measuring gross wages, it is possible to improve proper coordination.

For Society

1. Wise Use of Resources

Payroll practices ensure that resources are not wasted or stored carelessly. Employees are paid wisely for their work after making all the necessary adjustments.

2. Promotes Duty Cycle

Payroll ensures that only people who are fit to work to achieve company goals are hired. This helps in easy identification of influential people as well as provides many opportunities for the community.

At first, it may seem that the payroll management process seems simple. However, is the process really that simple? let’s find out.

Proses Payroll

After we know in-depth about what payroll is, the next is to know the payroll process in business. All payroll-related activities can be divided into eight steps. This activity is carried out at a certain stage.

Based on different stages, some have to be completed first, others during the payroll process and the rest after the payroll process.

Before Payroll Process

Identifying Payroll-Related Policies

Companies have various policies that determine the total amount paid to an employee. These need to be identified beforehand to avoid crippling financial problems within the organization.

Getting Information

All information regarding employees needs to be collected from the relevant departments.

Last-Minute Check

It is important to judge the data from the information obtained. Only data from reliable sources should be considered.

During Payroll Process

Final Quantity Calculation

The final amount should be directed only after making adjustments for all necessary factors.

After Payroll

Legal Regulation

Once the amount is set, all the respective documents must be submitted to a government agency to ensure legal compliance.

Creating and Saving Notes

All figures must be stated in detail to record all transactions.

Bank Reconciliation

Now, you have to match all the transaction details that you paid to all employees. Don’t let any transactions that don’t match.

Assessing Employee Performance

After completing all the steps above, the payroll clerk needs to ascertain the value of each employee to achieve their productivity.

Once the payroll process starts, it saves you a lot of wasted time and minimizes disputes and legal consequences.

Now you have to care about the main functions performed to focus on payroll activities. Well, all the steps above can be simplified by utilizing certain methods.

However, a small, home-based business may not be in a position to be able to outsource activities in the payroll management process. So, are they supposed to do manual processing in payroll while letting their competitors take over the market?

Well, the answer is NO.

Payroll Management System

The answer to the above problems is a payroll management system. It calculates all benefits, makes adjustments for benefits and also generates payslips for each payment.

This system can be easily implemented in any business, regardless of size or investment. If you’re still not hooked on using this system, let’s take a look at its additional benefits.

Benefits of Using Payroll Management System

Saving time

Let’s get this straight. Timing is one of the most important aspects of running a successful business. While the payroll management system still requires you to enter all inputs, you reduce the number of steps in doing payroll when compared to the manual method.

Manage All Information

These payroll management systems are often customizable and provide a high degree of flexibility for business standards. Laws and regulations are complied with regularly and information can be stored to avoid repeated entries.


Payroll management systems in most cases require an initial subscription and updates are provided regularly. This helps in saving a lot of money that would otherwise be wasted doing this service every month.

Keeping secrecy

Rules, regulations, plans, policies, and employee data can be kept confidential by using the payroll management system. Accountability and productivity are also increased as employees can always check their performance.

Optimal Utilization of Resources

The resources available to any company are limited and must be used appropriately. Human resources and other resources used every month to determine payroll can be a waste of their skills and abilities.

Switching to a payroll management system helps avoid such waste.

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