A Guide To Payroll Processing

If you’re an employer, you know that payroll processing is a vital part of your business. But what is it, exactly? And what are the benefits of using a professional…

April 15, 2022

Written by John Wonneberger

If you’re an employer, you know that payroll processing is a vital part of your business. But what is it, exactly? And what are the benefits of using a professional service to take care of this important task?

In this blog post, we will answer these questions and more. We’ll explain what payroll processing in accounting is, what are the services it provides, how it works, and more. So if you’re looking for a comprehensive guide to payroll processing, you’ve come to the right place.

What is Payroll Processing? 

In short, it’s the process of managing employee compensation. This includes calculating wages and salaries, withholding taxes and other deductions, and issuing payments.

Payroll processing is a complex task and one that requires a great deal of accuracy and attention to detail. That’s why it’s often best to outsource this function to a professional payroll service.

Payroll Processing Flow

Payroll processing is a valuable service for employers because it helps them ensure that their employees are paid accurately and on time. It also helps them stay compliant with tax laws and other regulations. There are a few key steps in the payroll processing flow:

Collecting employee data: This includes information like hours worked, hourly rate, and any other relevant compensation details.

Calculating wages and deductions: This step involves using the collected employee data to calculate things like gross pay, taxes, and other deductions.

Issuing payments: Once all calculations have been made, it’s time to issue payments to employees. This can be done via direct deposit or paper check.

Filing taxes: Employers are also responsible for filing federal, state, and local taxes on behalf of their employees.

These are just a few of the most important steps in the payroll processing flow. As you can see, it’s a complex process with many moving parts.

What Does Payroll Accounting Entail? 

Now that we’ve answered the question “what is payroll processing?,” let’s take a closer look at what payroll accounting entails.

As we mentioned before, payroll accounting is the process of managing employee compensation. This includes tasks like calculating wages and salaries, withholding taxes and other deductions, and issuing payments.

In order to do this accurately, employers need to have access to a variety of data points, including hours worked, hourly rate, and any other relevant compensation details. Payroll accounting software can help automate many of these tasks and make the process more efficient.

Payroll Processing Benefits

There are many benefits of using a professional payroll service to manage employee compensation. Perhaps the most obvious benefit is saving you a significant amount of time.

Another benefit is that it can help you ensure compliance with all relevant laws and regulations. This is especially important if you have employees in multiple states or countries.

Finally, using a professional payroll service can also help you improve your cash flow management. This is because they can provide you with detailed reports on things like wages and taxes owed.

Payroll Journal Entries

In order to properly record payroll in your accounting system, you will need to make a few journal entries. These entries will ensure that all the proper amounts are accounted for and balanced in your books.

First Entry

The first entry will be to record the gross wages earned by each employee. This amount will include any bonuses or commissions that were earned during the pay period.

Second Entry

The second entry will be to record the taxes that were withheld from each employee’s paycheck. This includes federal, state, and local taxes.

Third Entry

The third entry will be to record the employer’s share of payroll taxes. This includes Social Security and Medicare taxes.

Fourth Entry

The fourth and final entry will record any deductions taken out of each employee’s paycheck. This could include health insurance premiums, retirement plan contributions, or union dues.

Steps To Start Your Payroll Processing

The first step of the payroll process is choosing which payroll system you’ll employ. There are three different ways to process payroll. Each method has its own set of pros and cons that you’ll need to consider before deciding. Here are some things to keep in mind:

In-house processing: This is when a company has its own HR and accounting staff handle payroll internally.

Outsourcing: This is when a company hires a third-party provider to handle all or part of its payroll functions.

Payroll software: This is when a company uses specialized software to manage payroll internally.


Create A Payroll Policy

Once you’ve decided how you’ll process payroll, it’s time to create a payroll policy. This will ensure that your employees are paid correctly and on time. Here are some things to include in your policy:

Pay period: This is the frequency with which you will run payroll (weekly, bi-weekly, monthly, etc.)

Pay date: This is the day of the week or month when employees will be paid.

Direct deposit: This is whether or not you offer direct deposit for employee paychecks.

Timekeeping method: This is how you will track employee hours worked (e.g., timesheets, punch cards, software).

Gather Employee Information

This includes name, address, Social Security number, and bank account number (if you offer direct deposit). You’ll also need to know each employee’s hourly wage rate and the number of hours they worked during the pay period.

Enter Employee Information into Payroll Software

Once you have all of the necessary employee information, you’ll need to enter it into your payroll software. This can be a time-consuming process, but it’s important to ensure that all of the data is entered correctly.

Set Up Direct Deposit

If you offer direct deposit, you’ll need to set up each employee’s account. This can be done through your payroll software or your bank.

Establish Time Tracking System 

This is how you will track the number of hours each employee works. There are a variety of time tracking systems available, so you’ll need to choose one that best fits your needs.

Collect Employee Time Sheets

If you’re using a timesheet system, you’ll need to collect all of the employee timesheets and enter the information into your payroll software.

Print or Issue Paychecks

Once you’ve calculated payroll, you’ll need to issue paychecks or direct deposits. If you offer direct deposit, you can simply send the funds to each employee’s bank account. If not, you’ll need to print out paper checks and deliver them to employees on their payday.

Update Payroll Records

After each payroll period, you’ll need to update your records. This includes things like issuing W- forms and updating employee information.

Outsource Payroll

If you don’t want to handle payroll yourself, you can always outsource it to Accounting Services. This is a good option for businesses that don’t have the time or resources to handle payroll internally. When you outsource payroll, you’ll need to send your provider the necessary information, and they will handle everything for you.


Calculate Payroll

Once you have your payroll policy in place, it’s time to calculate payroll. This can be a complex process, so it’s important to take your time and double-check your work. Here are some things 

to keep in mind:

Wage rates: You’ll need to know the hourly wage rates for all your employees.

Hours worked: You’ll need to track the number of hours each employee works during the pay period.

Overtime: If any employee works more than 40 hours in a week, you’ll need to calculate their overtime pay.

Benefits: If you offer health insurance or other benefits, you’ll need to deduct the appropriate amount from each paycheck.

Taxes: You’ll need to withhold federal, state, and local taxes from each paycheck.

Benefits Of Using A Payroll Service Provider

Payroll processing is a vital part of any business, large or small. By outsourcing this important task to Accounting Services, you can free up time and resources so that you can focus on running your business. There are many benefits to using a payroll service provider, including:

Accurate and timely payments: When you outsource your payroll to a professional service provider, you can ensure that your employees will be paid on time and accurately.

Compliance with government regulations: Payroll providers are up-to-date on all the latest government regulations surrounding payroll taxes and deductions. This ensures that your business stays in compliance and avoids any penalties or interest charges.

Direct deposit: Most payroll service providers offer direct deposit, which is a convenient way for your employees to receive their paychecks.

Payroll reports: A good payroll provider will offer a variety of reports that can help you track your employee’s hours, vacation accruals, and more.

Get The Help Of Professional Payroll Services

There are many benefits to using a payroll service. Perhaps the most important is that it can help you save time and money. At Nesso Accounting, our team of experts work hard to handle all the details of your employee compensation quickly and efficiently. This frees up your time so that you can focus on other aspects of running your business. 

Staying on top of every detail can be a full-time job, but with Nesso Group, you can rest assured that everything is being taken care of. Contact us today to learn more about what we can do for you. We’ll be happy to answer any questions you have and get started on your planning.

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