Accounting

What Is The Meaning Of Payroll System

The subsystem for regular recording and payment of employee benefits is referred to as the payroll. The payroll involves:

• recording the amount of wages or salaries for the pay period

• updating personnel records for the appointment of new employees

• updating personnel records for the termination of employment contracts

• calculating the amount to be paid to each employee, net of deductions

• remitting payment of net wages or salaries to employees

• remitting payment of deductions to various external parties

• complying with regulatory requirements, such as reporting to taxation authorities.

Businesses may process several payrolls. For example, a business may process a payroll each fortnight for employees who are paid on a fortnightly basis and process a separate monthly payroll for employees paid on a monthly basis.

In return for providing services to the employer, employees regularly receive benefits, or remuneration, in the form of wages or salaries. Employers are typically required to deduct income tax from employees’ wages and salaries. Thus the employee receives a payment that is net of tax, and the employer subsequently pays the amount of income tax to the taxation authority.

Employers may offer a service of deducting other amounts from employees’ wages and salaries and paying other parties on their behalf. For example, the employer may deduct union membership fees from employees’ wages and make payments to the various unions on behalf of the employees. Similarly, the employer may deduct health insurance premiums from the employees’ wages, and remit payments to the various health insurance funds that its employees have joined.

Payments made on behalf of an employee from amounts deducted from the employee’s wages or salaries form part of the entity’s wages and salaries expense. As these amounts are typically remitted in the month following the payment of wages and salaries, they represent a short-term liability for employee benefits at the end of each month.

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