In accounting terms, a payroll involves all of an employer’s activities that are related to employee compensation, such as payroll accounting, the preparation of payroll withholding tax returns and benefits administration. The term payroll is also used to refer to the amount an employer is liable for in terms of salary and wages to its employees, and is known as the company’s employee compensation expense.
The actual amount of pay an employee receives is based on calculations that involve deducting certain amounts from the employee’s gross income. For example, for a given employee it is calculated as follows. Salary, bonus, overtime, and other income paid are added to determine the total gross income amount. From that amount personal income tax, Social Security, Provident Fund Tax, Provident Fund, and other agreed deductions are made, yielding the employee’s net income.
Additional payroll calculations are made for each individual to determine year-to-date totals for income, tax, Social Security Fund and Provident Fund contributions.
These calculations can be automated, and a number of software packages are available that handle payroll processing. Many companies decide to use outsourced payroll services to avoid having to employ staff and procure the necessary computer software to manage payroll calculations.
Many of our clients prefer to have us handle their payroll calculations as part of a broader payroll services package that we offer. In addition to these calculations, our professional staff also perform payroll deposit and tax reporting requirements on behalf of our clients.