The Essentials of Payroll

The most important reason for any person to work is the "bottom line": being paid. For most workers, the simple fact of the matter is that, depending on their shift, they will turn up for work in the morning and leave in the evening; and, when the month is over, they will get their paycheck and their salary will go into their bank. It is perfectly simple. What few people give any thought to is that somebody puts the money in their bank account or cuts the check. There is, effectively, an invisible link between the work they do and the money they earn for it.

The truth is that that invisible link is actually one or more persons whose job is to ensure that a company's employees get their remuneration in full, on time, and without any need to request it themselves. It is far from automatic and actually requires quite a bit of work on the part of the people responsible for making the payments. These people are the payroll staff. Their job is, in some people's minds, an afterthought; but there is one simple fact that we need to keep in mind: If the payroll staff were not there, or did not do its job, then the very reason these workers are turning up in the morning would be thrown into question. If people did not get paid, there would be quite a lot of turmoil involved.

The payroll department does not exist in every company. In many cases where there are only a few staff members, the manager or senior worker will take care of payroll matters. However, in a larger company, where the number of workers ranges from double figures to the thousands, there is a real need for people to keep the wheels oiled and running smoothly. If a company stopped paying its employees, sooner or later they would stop turning up. So as straightforward as we may feel the link between work and payment is, the truth is that everything has to be done meticulously. Any difficulties must be fixed without the need for a long, drawn-out process. Even in these days of automation, when so much can be done with computers, there still needs to be a process in place to ensure that everything is done correctly and any problems fixed quickly and expertly. Safeguarding this process is the responsibility of payroll staff.


The payroll staff is a vitally important part of any large company. Although the department name lends itself to a belief that its members are concerned solely with pay matters, the payroll department plays a major part in the human resources side of most companies. Often when a person is involved in some sort of scandal, his past employers get dragged into the media furor and respond to all questions by simply saying, "This individual is no longer on our payroll." The term "payroll," to a large extent, has become shorthand for the overall workforce of a company. In this respect, a company's payroll department has many responsibilities regarding the overall workforce. The department is not only important, it is essential. Not only does it have responsibility for seeing that the staff gets paid, it has a major administrative role in the company.

Aside from ensuring that payments are made on time, what are the responsibilities of a payroll department? Record-keeping is vital in a major company with lots of employees. The payroll department is among the few sections in a company that hold address and contact details for each employee. Should someone from outside a company wish to get in contact with one of the company's workers, the first people to contact are in the payroll department, where employees are trained in the privacy requirements of such requests. OTHER REQUIREMENTS OF A PAYROLL DEPARTMENT

The payroll department needs to hold a lot of additional information on staff members, though. With the large variation of benefits and deductions that are connected with an individual's salary, the payroll department needs to know from month to month what a person is owed in terms of these benefits and what that person must pay in terms of deductions. These deductions will include taxes but may also apply to healthcare packages, student loan repayments, pension plans, and savings accounts.

Collecting all of the above data and more for each employee is a massive undertaking; and if all the duties of a payroll department are to be sufficiently covered, the company will need a well-staffed and organized payroll department. To get the right people on board, the company cannot just stick a pin in a list of employees. The payroll department needs people who have strong arithmetic skills and attention to detail. If they have payroll experience with another company, so much the better. If they have formal qualifications in accounting or a comparable subject, that is better still. Larger companies have the most stringent requirements of all; not only do they have the capability to be picky, but they also have larger workforces and consequently more money to pay out, so they have the extra need to be careful. If you are looking for a payroll job with such a company, then you will be expected to have a degree in a related subject.


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The payroll department of each business is charged with the responsibility of keeping a vast range of records on the company's workforce. The department has to send weekly or monthly pay stubs to employees according to a company's pay period, so it needs to keep addresses on file. Employee phone numbers are on file, too. However, this is just one part of record-keeping. Every payroll department also needs to retain a whole range of information on past employees for tax purposes, among other things.

When one refers to a company, it is not uncommon to refer to it as an organization. This is not an accident of language; the important thing about a payroll department is that it is organized. A company in any given month will deal with any number of requests for information and inquiries ranging from the most basic to some that are very complicated. It needs to have this information readily available at short notice and be able to transmit it in various forms. Payroll employees may be asked to e-mail details confirming the length of service of a past employee. They may be asked to confirm verbally that an individual was once employed by a company. An individual may ask for copies of old pay stubs for the purposes of a tax return or a loan application. Add this to the more basic requests where a current employee may call on any given day for confirmation of details regarding his or her salary, such as date of issue or amount, and it is easy to see just how much information a company needs to hold.

Other records that must be kept include the number of hours an employee works in a given month. The employer will keep time sheets detailing when an employee is at work: for how long, on which days, and any overtime logged. This is so that an employee gets paid correctly and is rewarded for her or his presence in the workplace. Failing to safeguard this system will have ill effects in the short and long terms and can even lead to employees leaving their jobs through dissatisfaction with their employer.

There is another reason that a company needs to hold and organize a range of information, and it has become more important in the last decade or so. This is the fact that a majority of workers in this day and age receive payment by electronic transfer into a bank account at the end of the month. To ensure that this is done promptly and accurately, the employee needs to supply their employer with their bank details at the outset of their employment. We all know of horror stories in which people had their bank details stolen or lost and suffered extremely harrowing experiences as a result.

For this reason, it is vitally important that the payroll department keeps organized records of the bank details used to transfer electronic payments. Any loss or incorrect transmission of these details will have consequences for the employee, the least of them being a delay in receiving his or her salary in any given month. This delay will lead to an inquiry from the employee, a lot of unscheduled work, and a potential financial penalty for the company for the privilege of making an emergency payment. Multiply this by a factor of 10 or more and you can see how damaging it can be for a company to have poor record-keeping.

If the details are not securely transmitted, they can fall into the wrong hands, and the consequences for the employee are vastly worse, as enterprising criminals can make use of these details to empty the person's account. Money in general and getting paid for the work performed in particular are extremely important matters for anyone. The least that an employee expects from an employer is to be paid on time, securely, and correctly. For this reason, a finely tuned record-keeping system is vital in any company.

The company also will need to keep duplicate records in a secure backup system. At any given time, the company can receive a request for access to the information held. The importance of these records is absolute. In times past, a company's payroll staff would keep all records by hand, with a different ledger for different figures, such as additions, deductions, and any special circumstances for the worker. It required painstaking attention to detail and a lot of manual work.

Now that a lot of this work is done by computer software packages, the days of adding and subtracting columns of figures may be all but gone, but the keeping of records is no less important. No computer system is totally infallible, and even the more reliable ones are still at the mercy of the people operating them. Thus, having on hand a filing system detailing who got paid, how much was paid, when the payment was sent, and why it was that amount is vital. Not only that, but it must be retrospective. For tax purposes, payroll departments keep records for at least three years; but given the requests they habitually receive for further information, there are many companies that hold records for a lot longer. The average seems to be between seven and 10 years, but with no statute of limitations on how long records can be held, it is not unheard of for organizations to keep such records going back over 20 years.

In this respect, the advent of computerized record-keeping has been a huge help to companies that now are able to keep long-term records even where space is at a premium. Rather than fill a large room with boxes full of records and have a huge search on their hands to find the relevant details, companies can now have the records safely backed up on disc and know that the information is readily searchable. It is important in this situation, though, to make sure that all records are kept correctly and updated as soon as possible. At the very least, delay can lead to major problems in searching for records that can adversely affect many people.