All businesses need to have a deep understanding of what payroll processing means. Whether you are a small enterprise or a global brand, the correct processes must be in place to ensure your business runs smoothly. This is especially important in accounting firms.
In this post, we’ll look at what payroll processing is, its benefits in accounting, why you should offer the service to clients, and more. Before we delve into payroll processes, it’s worth discussing what payroll is.
What’s Payroll?
Payroll is a term used to describe making payments to your employees through direct deposits or checks and taking care of any corresponding taxes related to that payment.
When hiring an employee, they must interact with various payroll-related forms and other systems. Payroll processing has become an integral part of businesses today because it allows employers to take care of their payroll needs and ensure that their employees get paid on time.
How Does Payroll Work?
Payroll is how employers calculate and pay their employees’ wages. In most jurisdictions, employers must withhold taxes and other deductions from their employees’ wages and remit those withholdings to the appropriate government agencies. Payroll also typically involves calculating and paying employees’ benefits, such as vacation pay, sick leave, and health insurance.
There are many different ways to calculate payroll, and your method will depend on your business’s size and structure. If you have a small business, you may be able to calculate payroll yourself using a simple spreadsheet. For larger businesses, there are several accounting services available that can take care of your payroll calculations.
Payroll Processing In Accounting
Payroll in accounting is the recording, calculating, managing, and analyzing employee compensation. Payroll accounting also includes benefit reconciliation, withholding taxes, and compensation deductions.
This process aims to ensure that employees are paid accurately and on time. To maintain accurate records for tax purposes, it is important that all employee-related payments are documented properly.
The Payroll Process
This process is when payroll information, including employees’ paychecks, taxes, and social security numbers, is collected, updated, and submitted to external agencies or departments. The responsibilities associated with payroll processing vary depending on the type of organization. Typically, payroll processing in accounting includes:
- Receiving and Handling Employee Paychecks.
- Electronically Depositing Employee Paychecks Into a Bank or Other Financial Institution.
- Tracking Employee Taxes.
- Preparing and Submitting Employee W-2 Forms.
- Preparing and Filing Employee Social Security Numbers.
- Filing State and Federal Payroll Taxes.
The responsibilities associated with payroll processing vary depending on the type of organization. A good payroll system in an organization is to ensure accurate and timely financial reporting.
Payroll Processing Benefits
By getting payroll processing and accounting services, you can ensure that all taxes are paid on time, and that employee salaries and other compensation are accurately recorded and tracked.
To incorporate payroll processing, you must first assess the benefits of doing so. Once you have identified the benefits of incorporating payroll processing, you can begin to navigate the necessary steps to make the process a reality. Let’s take a look at what these benefits are:
Up-to-date knowledge: An accounting firm specializing in payroll processing will have the most up-to-date knowledge on payroll-related things. This includes changes in tax laws, new compliance regulations, and more. This way, your clients can be confident that their payroll is being handled by experts who constantly keep up with the latest information.
Provides A More Efficient Accounting Process: Incorporating payroll ensures that all employee compensation is accurately tracked and accounted for in the company’s financial records. This prevents errors and discrepancies in the accounting process and makes it easier to prepare financial statements and tax filings.
Protects The Company From Liability: Incorporating payroll protects the company from potential liability issues. If an employee is not paid correctly, they may be able to sue the company for unpaid wages. By incorporating payroll, companies can avoid these potential legal problems.
Provides A Positive Employee Experience: Lastly, incorporating payroll can provide a positive employee experience. Employees paid on time and correctly are typically happier and more satisfied with their job. This can lead to increased productivity and retention rates for the company.
Benefits Of Offering Payroll Processing To Clients
Offering payroll processing to clients can offer many benefits. As a business owner, you must understand these benefits. In many cases, it can be a game-changing factor for client satisfaction and growth. Let’s look at some other benefits:
Saves Time: The biggest benefit of offering payroll processing to clients is that it saves them a lot of time. Rather than dealing with the task themselves, they can outsource it to you and know that it will be handled quickly and efficiently.
Reduces Errors: Another big benefit of offering payroll processing to clients in reducing errors. This is because you will have a team of experts who are experienced in dealing with payrolls and know how to avoid mistakes. Your clients can rest assured that their employees will be paid correctly and on time.
Increases Productivity: When employees are paid on time and without errors, it helps increase their productivity. This is because they won’t waste time chasing up their pay or correcting mistakes, and they can focus on their work instead. As a result, your clients’ businesses will run more smoothly and efficiently.
What Role Does Payroll Play In An Accounting Firm?
Although not every accounting firm offers payroll services, the same data used for payroll is already being used for tax and other accounting purposes. Providing payroll services to your clients can be beneficial since you’re already managing all the same information needed for it.
It’s important to know a couple of roles that payroll plays in your accounting firm. Let’s take a look at these:
Compensation and Benefits
It helps you manage employee compensation and benefits. This includes things like salaries, bonuses, and vacation days. Additionally, payroll can help track employee hours worked and calculate taxes owed. This information is critical for preparing financial statements and filing tax returns.
Retirement Benefits
Another role that payroll plays is in managing employee retirement benefits. This includes tracking employee contributions and ensuring that they are properly invested. Additionally, payroll can help you calculate the number of benefits that employees are owed when they retire. This information is critical for financial planning and ensuring that your firm has the resources to meet its obligations.
Law Compliance
Payroll can help you manage compliance with state and federal labor laws. This includes keeping track of minimum wage rates and overtime pay requirements. Payroll can also help you ensure that your employees are paid their fair share of tips and commissions. This information is critical for avoiding penalties and maintaining good employee relations.
Things To Know About Your Clients Payroll Process
Before starting with your client, you need to understand their current payroll process. Here are some of the most important things you need to know:
- How often are they running payroll? Employees are typically paid every two weeks, but some other businesses run payroll weekly.
- How many employees do they have? This will help you determine the scale of the payroll services you need to provide.
- What type of payroll system do they use? Manual or electronic? This will help you understand the level of support your client will need from you in terms of setup and training.
- What types of deductions are taken out of employee paychecks? Federal, state, and local taxes and other deductions like healthcare and retirement contributions need to be withheld from employee paychecks. You’ll need to know what deductions your client’s employees have so that you can properly set up their payroll account.
- Are there any special circumstances that need to be considered when running payroll? Things like commissions, tips, overtime, and vacation pay must be considered when processing payroll.
Client Payroll Management Steps
The last step is to determine what the process will be like when you’re coming up with how you’ll tackle your clients’ payroll management:
1 – Figure out the services your client will require:
Full-service payroll: Services may include tax filing, direct deposit, and check printing.
Payroll software: This is a do-it-yourself solution where the business manages its payroll but relies on software to calculate wages and taxes.
Outsourced payroll: The business contracts with a third-party provider to manage all aspects of payroll.
2 – Create separate client accounts:
You will want to create separate accounts in your payroll software for each client to keep their information separate.
3 – Add employees to each account:
Once you have created the accounts, you want to add each employee to the corresponding account. Ensure all relevant information such as their name, address, social security number, and salary.
4 – Set up payroll schedule:
You must determine how often you will run payroll for each client. This could be weekly, bi-weekly, or monthly.
5 – Process payroll:
This is the actual calculation of wages and taxes owed to each employee. Once this is done, you can print checks or deposit funds directly into employee bank accounts.
6 – File taxes:
Depending on the services you provide, you may be responsible for filing state and federal taxes on behalf of your client.
Get Your Payroll Services From Us
It’s important to have an experienced professional on your side. Payroll processing requires detailed care and attention. Our Nesso Accounting professionals work hard to ensure everything is taken care of and that all your needs are met.
Don’t leave anything to chance when our Nesso Group team can help you navigate any accounting situation. We’ll work alongside you to develop a tailored plan to meet all your goals. Don’t hesitate to reach out now to learn more about our services and how we can help.
