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  • Benjamin Elliott

Complete Payroll Process Flowchart: Step-by-Step Payroll Guide



Complete Payroll Process Flowchart

What is the single most important task a company needs to get right? Without a doubt - paying their employees.


Understanding your payroll process flowchart and achieving total accuracy with each step is essential for the smooth operation of any business.


Unfortunately, this can require a lot of time and effort if your payroll process isn’t optimised.


In this guide, we’ll cover the main steps involved in your payroll process flowchart, and reveal how you can use the right payroll software to improve payroll accuracy.



What You Need To Know Before Setting Up Payroll

Before you take on employees or enter anyone into your payroll system, you’ll need to establish a few elements. This includes knowing how frequently you will pay employees, what payment method you will use, and what kind of deductions employees receive.


The frequency of payments will totally change your payroll process. Some companies process payments weekly, bi-monthly, or monthly. Whatever the case, you’ll need to go through the entire payroll process flowchart each time you release payments.


Then you’ll need to establish payment methods. This could be via direct bank transfers, an online payment wallet, or more. The payment method is important to consider if employees work remotely or globally.


Beyond pay frequency and methods, you’ll also need to establish what kind of employment agreement you have and what taxes and benefits should be taken into account.


This will affect what deductions you need to take off, and it will determine what gross and net pay differences your company offers employees.




Payroll Process Flowchart

Payroll processes might differ between different companies and their relationships with employees. However, the payroll process flowchart follows the same general steps.


Here is a breakdown of the main steps and functions involved in the payroll process.


Gross Pay Calculations

The first step in any payroll process is calculating gross pay, which you enter into your payroll system.


If you need to calculate wages based on an hourly or shift basis, then you’ll have to determine the number of hours an employee worked during the payroll period and multiply this by their hourly rate. Also, be sure to add in any overtime payments.


Once you have calculated your gross payouts and employee hours, you’ll then need to refine these payments.


Take Off Taxes And Deductions

Once your staff’s gross payroll has been calculated, the next step is to deduct taxes and any other costs.


Of course, this approach depends on your location and employee agreement. Employers might be required to take off pre-tax deductions, which lower the employee's taxable income.


Next, you’ll need to subtract tax from employees' wages - like PAYE taxes. Tax deductions depend on where your business operates from, what tax band the employee is in, and so on.


Once taxes have been withheld, you might need to make post-tax deductions. This could include fees like medical insurance or pension schemes.


Make sure that all withheld tax amounts are kept in a separate payroll tax account. This makes it a lot easier to remit accurate amounts to tax agencies.


Now that you have successfully turned your employee's gross pay into net pay by taking out all deductions, the next stage of the payroll process flowchart involves delivering this net pay to the employee.


Verify Payroll

Before employees can get paid, you’ll need to verify their payroll amount. This is an essential step in the payroll process flowchart, as accuracy is key and sometimes mistakes are imminent.


Double-check your calculations to verify that the figures are correct. Use a buddy system by bringing in other members of your finance team to verify calculations, as the collaboration makes it easier to spot any possible errors.


Once all the details look legit and payroll has been verified, the next step is to actually pay employees.


Paying Employees

Once payroll amounts are calculated and verified, it's time to send the money to the employee. This will typically be done via direct bank transfer.


Of course, you’ll need to ensure that you have the employees proper banking details loaded onto your payroll system first.


You’ll also need to make sure that you provide the required information to the employee in the form of a pay slip. This should cover all of the details and deductions that you took off during the payroll process cycle.



Automating The Payroll Process Cycle

The four steps above represent the general payroll process flowchart that businesses use. However, this process can involve extra steps, and get a bit more complicated based on the company and the details of the employee's salary agreement.


Whatever the case, payroll processes generally tend to involve a fair amount of manual work and calculations. You can’t afford to make a mistake here.

This is why payroll automation tools can make the finance/HR team’s operational procedures so much easier.


With automated bulk payment platforms, you can simply verify and send payments in just a few clicks. No need to rely on manual calculations and no need to manually enter any banking or employee details into the system.


All of this is calculated for you. You can also verify bulk payments and process these all at once, making it a lot easier to get your team paid.


This saves loads of time and reduces the risk of error in the payroll process.



Conclusion

The basic framework for any payroll process flowchart is setting up gross pay calculations, taking off taxes and deductions, verifying payroll and of course, paying your employees.


Payroll systems often include additional steps and activities dependent on the company and employee salary structure.


Using an effective software solution to enhance payment processes can be a game changer. This speeds up an otherwise time-consuming payroll process and helps you achieve greater accuracy and security with each payroll cycle.





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