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Finance glossary

What is payroll?

Bristol James
1 Min

Payroll is the process of paying employees wages. The term payroll is also used to describe the employees being paid and the total amount of the payments.

Payroll management can take on many different forms, including:

  • Verifying employee hours
  • Calculating payroll taxes
  • Deducting pre-tax and post-tax benefits from gross pay
  • Prioritizing payroll accuracy and timeliness
  • Filing quarterly and annual payroll tax
  • Issuing year-end payroll tax forms
  • Onboarding new employees
  • Tracking reimbursements

Since payroll is one of the main areas in a business that can be susceptible to fraud, it’s best to either outsource the process to an independent third party or have select individuals manage the payroll process.

Moreover, in-house payroll processing generally involves comprehensive payroll software. Online payroll software does the majority of the work for your payroll team, calculating gross pay, taxes withheld, and benefits. This can help you reduce errors in your payroll function while still keeping payroll in-house.

Payroll accuracy needs to be a priority. Not only can frequent payroll mistakes lead to unhappy employees, but regulatory agencies also closely monitor payroll, specifically when it comes to contractors.

Independent contractors are not considered employees of your company, resulting in no payroll taxes being withheld. It can be easy to misclassify employees as contractors. Differentiating between these worker classes* is crucial, as regulatory agencies will assess fines, penalties, and back payroll taxes for any misclassifications.

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