How to Process Payroll

A Basic Guide to Payroll Processing

Sep 3, 2009

This article covers some of the basic steps involved in payroll processing. The different pay types, calculations and situations that affect payroll are explained.

Payroll processing is a very detailed task; one that can take years of practicing to master. Anyone with the desire to learn about payroll must first learn how to process payroll.

Payroll Processing Date

Determine the payroll processing date. For example, if the payroll is weekly, process the payroll at least two days before the actual pay date. This allows adequate time for direct deposit transactions and check printing.

Payroll Processing--Hourly Employees

Calculate hours stated on timesheets. Hourly employees are often required to complete a timesheet, which the employee and her manager/supervisor must sign. If not, it is invalid, and should be returned to the appropriate parties for signatures.

Pay all regular, vacation and sick/personal time at regular pay. For example, an employee’s pay rate is $10/hour. If she has 32 regular hours and 8 vacation hours for the week, calculate as follows:

Payroll Processing--Salaried Employees

Upon each payroll processing, a salaried employee’s pay will typically remain the same. Salaried employees are usually executives, managers/supervisors and other professionals. They are entitled to a full day’s pay even if they work a half a day. However, if the salaried employee has used up all her sick days, the employer can dock her pay for excess days taken. The salaried employee’s pay should only reflect a change if she has had a pay adjustment.

Payroll Processing--New Hires

Pay hourly new hires for hours worked depending on the start date and pay frequency. For example, the employee started two weeks before the payroll cut-off date; however, the company pays biweekly (every two weeks). Most likely, the hourly employee’s first check will reflect one week’s pay, or he will have to wait three weeks to receive his first full check.

Pay salaried employees according to the start date. If the salaried employee started during the pay cycle, prorate his pay. He should be paid from his start date through to the payroll cut off date.

Payroll Processing--Terminations

Pay hourly employees for all hours worked either immediately or during the next payroll processing.

Pay salaried employees for days worked during the payroll cycle. Depending on his termination date, his pay may be prorated. For example, if he terminates on Tuesday but the pay cycle ends on the upcoming Friday, pay him from the start of the pay cycle through Tuesday. Therefore, his check would be short by three days.

Payroll Processing Tips

Double-check all wages to be paid before closing the payroll. When utilizing a computerized payroll processing system, run reports to ensure that all taxes and other deductions are properly calculated.

Try to fix errors on the next payroll run. However, in emergency situations, such as employee replacement checks, make manual adjustments immediately if necessary.

The copyright of the article How to Process Payroll in Accounting is owned by Grace Ferguson. Permission to republish How to Process Payroll in print or online must be granted by the author in writing.