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What does payroll administration look like?
As your business grows, it's inevitable that you'll eventually need extra hands for when it gets too busy. And when you hire new people, you also have to pay them wages - this is where payroll comes in.
Payroll administration can be confusing and time-consuming for many companies. That's why we've put together this guide to cut through all the jargon and explain everything you need to know.
This guide covers:
What is payroll administration?
The term "payroll administration" means the administration of employee expenses within a company and the payment of wages to employees. It is also important to register employee benefits, such as pension or profit sharing, and to report payroll taxes to the tax authorities.
Payroll administration is also referred to as payroll. These two terms are often used interchangeably, but mean the same thing.
Payroll duties
Payroll administration is essential in any company where people work. In order to be able to carry out the payroll administration, you must first know which details are required. The work of the payroll administration for a company consists of:
- Doing administration of staff data
- Registration of the hours worked and expense claims
- Calculate Salaries in Net/Gross Pay
- Deduct payroll taxes and pass them on to the tax authorities
- Track additional salary payments
- Recording employee benefits
- Prepare annual statements for employees
- Labour costs in accounting
- Paying wages
Below we take a closer look at the 9 activities within the payroll administration.
1. Doing administration of staff data
Before you can carry out the payroll administration, it is important to have your staff administration in order. For this, the basic details of your staff, such as their name, address, citizen service number and the agreed monthly salary, must be entered in the staff administration. The employment contract, identity documents and diplomas are also stored within the staff administration. The agreed holidays must also be included in a payroll administration.
In addition, it is useful for the employer to keep an individual staff file for each employee. This allows you to store communication with your employee or important matters about your employee, so that you can use it in assessments. It can be used in positive and negative situations: to give an employee a promotion, but also to substantiate a future dismissal.
You don't want to maintain your payroll and staff administration in Excel, because this often becomes complex. That is why there are special payroll systems, such as Delta payroll software, to which you can add extra modules such as HR administration, or Polaris all-in-one staff system, which includes an extensive HRM package for keeping records on recruitment and selection and staff scheduling.
2. Registration of the hours worked and expense claims
Recording hours worked is mandatory. After all, it is possible to check whether the guidelines with regard to working and rest times are being observed on the basis of time attendance registration.
If you pay your employees an hourly rate, you'll need a time attendance system to track the hours they work, so you can be sure they're being paid the right amount. For salaried employees, you can choose to check when they are working to make sure they are working their contracted hours. You must also record sick leave for each employee, as well as any overtime employees have worked.
It is also the task of the payroll administration to check expense claim forms, for travel expenses for example. The agreed holidays must also be included in a payroll administration.
3. Calculate Salaries in Net/Gross Pay
You should keep track of whether your employees have a salary or an hourly wage within the payroll administration, because this determines how to calculate their salary. Depending on the nature of your business, you can choose to pay your employees an hourly wage instead of a fixed salary.
Fixed salary payments
A fixed salary is usually a fixed periodic wage or monthly wage, which means that the employee receives a fixed amount per agreed period.
Hourly wage payments
An hourly wage is an amount based on hours worked rather than a monthly fixed amount. You set an hourly wage and multiply it by the number of hours worked to calculate the total wage in a certain period.
Calculate gross and net wages
You must state the gross and net wages on the payslips of your employees. Gross pay is an employee's total pay within that period, and net pay is the amount they receive after taxes and any other deductions.
4. Deduct payroll taxes and pass them on to the tax authorities
According to the law, every employee must pay tax and national insurance on their total gross salary. This amount can vary depending on the total amount an employee has earned and their circumstances. Either way, it is the employer's responsibility to ensure that the correct amount is withheld from wages and paid to tax authorities each month. It is important to complete this on time each month, otherwise a fine may be charged.
When you run a payroll, you use multiple calculations to ensure that the correct wage is paid to the staff. By using payroll software, these checks, payroll taxes and social security contributions are performed or calculated automatically.
5. Track additional salary payments
Depending on the industry and the collective labour agreement that applies to your organisation, employees may receive commission, bonuses or tips on top of their basic pay. These must also be accounted for in the payroll administration. Sometimes a retroactive entry is required because there has been a change in the collective labour agreement, for example. The abbreviation TWK stands for 'with retroactive effect'. When a retroactive result is stated on a payslip, this means you will receive an additional amount in your account retroactively.
6. Recording employee benefits
If you want to keep your staff happy and motivated, you can offer a benefits package. This includes private healthcare, a pension package and employee discounts. It's important to include these factors in your payroll, as some of them can affect the amount employees are paid per period.
7. Create and check annual statements for employees
At the end of a calendar year, you must provide your staff with an annual statement. An annual statement lists all the wage data of an employee in a specific year. An employee uses this information on their tax return. Providing the annual statement is required by law and must be done within a reasonable period of time. If an employee leaves the company during the year, the annual statement may be provided earlier.
8. Labour costs in accounting
One of the last, but certainly not the least important topics, is keeping track of salaries and labour costs in accounting. Because the wage costs of your staff must be included in the bookkeeping.
9. Paying wages
And of course... paying the wages to the staff is an important step in payroll administration.
To make these matters transparent for yourself and your employees, you periodically provide your employees with an (online) payslip. This will include the gross and net wages, as well as various deductions. You can also use a proforma payslip. A proforma payslip is a test payslip that you can generate from a salary system. This can be based on an existing employee or a fictitious employee. By making a test payslip, you gain insight into the labour costs within the organisation in advance.
At BCS, we have been experts in payroll processing for over 40 years. Do you need advice when doing your payroll administration, or do you want to see which payroll software packages best suit your company? Please contact us and we will be happy to help you. No obligation.
Different ways of payroll administration
When you set up payroll to pay your employees, you should first check with yourself whether you want to do the payroll yourself or outsource it. You should take a moment to decide what is the best option for you and your business.
Hire a payroll administrator
If you prefer to spend your time on your core business, you can choose to have your payroll administration managed externally for you. The big advantage of outsourcing your payroll administration is the expertise that payroll administrators have. They are often used to working with larger payroll processes. At BCS we can be your salary partner and we are happy to help your company to the next level.
Do your own payroll
Doing the payroll yourself may sound like the cheapest option, but it is a job in itself and it takes time. Especially if you choose to do the payroll of your company by hand. When you start doing payroll yourself, you need to make sure you do it correctly and comply with all required calculations and taxes. Failure to do so could potentially break the law and result in fines that quickly become a substantial item, as it often involves multiple employees and multiple years. In addition, you do not want to have dissatisfaction among employees due to errors on their payslip.
Fortunately, there are various payroll administration courses and software packages that BCS offers to perform good payroll processing quickly, precisely and easily. In addition, BCS always provides an extra hand while performing your payroll processing. Do you have any questions? You can always contact our helpdesk. It is not just one aspect, but the whole package that pays off.
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