Payroll processing, quite simply, is the payment of wages made to an employee by an employer.
Looking for Payroll Software? Check out SoftwareSuggest’s list of the best payroll software solutions.
For most organizations, payroll is its biggest expense. It is, therefore, by far, the most important human resource management function.
On the Article:
- What Is Payroll Processing?
- Manual Payroll Process
- Automated Payroll Process
- Differences Between Manual And Automated Payroll Processes
- Issues With Manual And Automated Payroll Processing
- Benefits of Manual And Automated Payroll Processing
- How Can A Payroll Software Help With Payroll Processing?
- Selecting Payroll Software
- Our View
What Is Payroll Processing?
The payroll process broadly involves two steps. The first step is the preparation of payroll inputs. The second step is generating payroll reports based on those inputs. These reports are finally used to make salary payments. Processing payroll is a complex activity and involves many factors. In most organizations, these factors are usually documented as a checklist. The checklist serves as a guideline for processing payroll.
A typical payroll checklist would include the following,
- The employee register must be current and up-to-date.
- All new hire documentation must be completed ahead of processing payroll.
- Impending employee exits must be tracked.
- Vacation time and sick leave must be accounted for.
- Salary changes and other payroll adjustments must be noted.
- Attendance and overtime data must be collected and approved by the business heads.
All this information is then consolidated and used to determine the payroll inputs.
Salary adjustments, employee additions, and deletions are made based on the payroll inputs. Government taxes and other statutory deductions are applied. The final amount payable to each employee is determined. Full and Final Settlement Statements are generated. These payroll reports are then verified and approved. Salary payments are then made as per the reports. Payroll may be processed using a manual or an automated process.
Manual Payroll Process
A manual payroll process requires one to manage the entire payroll process without using any systems. It depends entirely on human effort. It involves managing the entire process by hand. This would even include monitoring attendance data and calculating statutory deductions.
Automated Payroll Process
The automated payroll process, on the other hand, uses specialized payroll software. This software can automate almost all the steps of the payroll process and requires only minimal human intervention. Time-keeping systems can be used to track attendance and overtime. They can be linked with the payroll software which can also track leave requests. At the most, one might need to enter new hire information and employee exit dates into the system. Automated payroll systems can typically take over the rest. This could even include calculating tax and statutory deductions based on the applicable region.
Differences Between Manual And Automated Payroll Processes
| ATTRIBUTES | MANUAL PAYROLL SYSTEMS | AUTOMATED PAYROLL SYSTEMS |
|---|---|---|
| Effort | The entire payroll process is managed by individuals. This is achieved entirely by hand without any systems. | The entire payroll process can be managed using a computerized system. It requires little human effort. |
| Speed | This is a lengthy process as all the steps in the payroll process have to be managed manually. | This is a much shorter process. Almost all the steps in the payroll process have scope for automation. |
| Bottlenecks | This system is more prone to bottlenecks. It involves a lot of coordination, deadlines, verification, and approvals. | These systems are centralized and collect information on a real-time basis. The layers of coordination, verification, and approvals are fewer. |
| Consistency | This system is more prone to inconsistencies. It is heavily dependent on the dynamic nature of human activity. | Automated systems do not leave much room for inconsistencies. They are dependent on computerized systems. |
| Accuracy | The scope of possible human error is large. | This system eliminates human error by minimizing human intervention. The scope of errors is marginal. |
| Security | This is a less secure method as it involves a lot of paperwork and does not have much scope for encryption. Those looking to misuse the data do not need to be skilled at compromising data security. | This is a more secure method as data is encrypted and password protected. Only skilled hackers would be able to compromise the security of the system. |
| Reporting/Analytics/Database Maintenance | Data may not be up-to-date or available real-time. This is because it involves a higher amount of data-entry work and manual effort. Reports may not be available immediately. Any analysis of the reports will need concentrated effort and time. However, a wide variety of analysis is possible as it is up to individuals to carry them out. | Data is available on a real-time basis. Reports can be generated within minutes, from the system by those having access to it. The level of data-entry work involved is minimal. Most payroll systems also have built-in analytic capabilities. Analytic data can be generated immediately. Having said that, automated systems can only do what they are configured to do. It may not be possible to carry out a wide range of analysis. |
| Cost | The start-up cost of a manual payroll process is much less than an automated one. It may seem like a cheaper option. However, this process may eventually catch up with the cost of the automated system. It may even end up being costlier. This is due to the cost of the additional resources used and the long hours spent in processing payroll, and also other overheads such as internet connectivity, papers, and calculators, etc. | The start-up cost is considerably higher in this case. Automated systems do not require a lot of time, resources and overheads on an ongoing basis. They may eventually end up being a cheaper option in the long run. |
| Business Continuity | This system relies heavily on individuals. It also involves a lot of paper trail. Backing up information is not easy in this case. Individuals handling payroll activity may not be available for any reason. Paper records could get destroyed or misplaced. However, in the event of a natural calamity, it is easier to replace papers, calculators and other equipment used for manual payroll processing. It may be possible to restart operations much sooner. | Information is stored electronically. It can be accessed by authorized individuals. It may be easier to continue business as usual. However, in case of a natural calamity, it may be more difficult to replace laptops and computers. If the software is not cloud-based, procuring the licenses again could be challenging. This may cause much delay in a continuing business. |
| Scale | This system cannot increase in scale easily to serve more customers and stakeholders. It would need hiring and training individuals. This could be a time-consuming activity. | These systems are built to serve a large number of customers and stakeholders. They are much easier to scale as per the demand. |
| Suitability | This system is more suited to serve a small organization with a small workforce. | This system is capable of serving large organizations. It can cater to a sizeable workforce, across various locations. |
| Productivity | This method can be counter-productive in the long run. Individuals may end up wasting too much time on low-value activities. This system requires too much time and effort. It is much more prone to errors. | In the long run, this method saves time, effort, resources and is more reliable. Individuals in the organization are free to focus on high-value activity instead. They are free to focus on profitable endeavors, instead. This method can, therefore, potentially, increase productivity. |
| Nature | The manual method is more reactive in nature. It responds to the requirement of the business and the customers. It functions based on that. It takes a much longer time and a lot more resources to build a manual system that is quick, efficient and accurate. | The automated method is more proactive. It has built-in capabilities that are already designed to save time and effort. They are made to be more reliable and accurate, with little effort. |
| Environment-friendly | This method involves a lot of paper trail. Therefore, it is the less eco-friendly option of the two. | This method is quicker and does not involve much paper usage. Therefore, it is better for the environment. |
| Customization | The scope of customization is ample. Manual process can be tailored and personalized based on the needs of the employees and also the organization. | Payroll software can have scope for customization but only to an extent. They are designed to serve a variety of clients across various industries. They cannot be completely tailored to a particular organization’s requirements. |
| Skill | The individuals hired would need prior training and experience in payroll management. They would also need to be knowledgeable about statutory laws and compliance-related matters. | Almost all the steps in the payroll process are automatic. This would include statutory reporting, tax deductions, etc. Automated systems are easy to use and require minimal data entry. They do not need highly skilled individuals to operate it. |
| Replacement | Individuals, processes and equipment used in this method can be replaced at any point. | Automated systems need a huge initial investment. Payroll software requires a long-term commitment and is not easy to replace. |
| Customer Satisfaction | This method is more time-consuming. It is prone to errors due to which it may cause dissatisfaction among employees. | Automated systems are more reliable, quick and accurate. They ensure timely and correct salary payments. This would lead to higher employee satisfaction. |
Issues With Manual And Automated Payroll Processing
In a nutshell, a completely manual payroll process requires a lot of human effort. There is increased scope for errors and it is a far more time-consuming activity. Recruiting, training and managing a team of skilled individuals is also a considerable expenditure.
An automated payroll process is also not without its challenges. It typically involves a huge initial investment and a long-term commitment. Individuals in the organization should be willing to step out of their comfort zone. They should be ready to commit to a new system. More often than not, new systems are perceived to be complicated and are met with resistance. Automated systems are standard and impersonal, which may be problematic at times.
Benefits of Manual And Automated Payroll Processing
A manual payroll process can be ideal in a small organization with a limited workforce. It can be personalized and tailored to fit the requirements of an organization. It could be more flexible, unlike a rigid automated system. It is easier to adopt as it requires a much lesser investment.
An automated payroll process, however, is an excellent option for larger enterprises. It ensures efficiency and eliminates much of the effort. It requires much less time and resources. It may be a considerable investment, but one can stand to gain a lot from this investment in the long run. For larger organizations that have a huge workforce and multiple offices across various regions, a manual process may be quite impractical.
How Can A Payroll Software Help With Payroll Processing?
The success of any business process lies in its efficiency. Automated systems ensure timely delivery, accuracy, and reliability. They eliminate much of human intervention and provide consistent and reliable results. They can be an excellent cost-saving proposition in the long run.
Selecting Payroll Software
One must take care, however, in selecting an automated solution. One must find the best fit for the organization. Plans for the near and distant future must be considered. Automated payroll systems require heavy initial investment and a long-term commitment. A solution must be chosen with care after evaluating multiple options. Close attention must be paid to its implementation. These factors are important to make it an effective proposition.
Tip: We have compiled an extensive list of the best payroll software available in 2019. Request for a demo or even a free trial of the products. Get quotes easily. You can even compare the products that you like! We can help you make an informed decision.
Our View
Employees expect to be paid in a timely, accurate and consistent manner. Seamless payroll management is important for the morale of an employee. It also impacts the reputation of an organization. It affects the perception of its financial stability. An automated payroll process is can thus be the way to go.
Hitendra is the Digital Marketing Executive and Content Analyst at SoftwareSuggest and loves helping people plan, optimize and launch marketing & content strategies. While digital marketing is his primary job function by day, hitendra also enjoys spending time with his family and listening to music.
Thanks for your great work. I learnt a lot about Payroll Processing from this blog.