What is Payroll Processing & It’s 3 Stages

If you wish to create a payroll system for your employees, this article has all the necessary information you need to know. Outsourcing payroll processing is an option that has enormous benefits if you go about it the right way.


Are you a firm established more than 20+ years back but still struck with timesheets and traditional payroll processing methods. Are employee salaries still processed by the old system designed almost decades ago? You might be offering several allowances, increments, performance-related bonuses, paid and unpaid vacations, etc. other than your monthly wages. Does your old system have a good on-demand monitoring system or report generation system? Does year-ends or semester-ends mean a week or more of document checks, audits, and related revisions for compliance?

If you have employees reminding you about adjusting unnecessary cuts every month or your accounts or HR confused about audits, compliance, etc. going for a recruitment payroll outsourcing is a good way to solve many problems.

Are you ready to update your payroll processing methods? If you are a startup, let’s begin from the beginning.

What is a Payroll Process?

Razorpay defines the payroll process as, “The process of paying salary to a company’s employees. It starts with preparing a list of employees to be paid and ends with recording those expenses.”

The payroll process according to Business news daily is defined as “The procedure taken to pay employees at the end of a payroll period. This process involves multiple steps to ensure that pay is properly calculated, tracked and doled out and that the correct amounts for tax, company benefits and other deductions are withheld.”

To ensure that businesses are compliant and the employees are satisfied with the payroll process, employers need to have a better understanding of the entire process.

Various systems can simplify the process such as those that allow for payroll automation.

It is good to go for the recruitment payroll outsourcing or to partner with an accountant to manage it, especially to avoid much of the cumbersome administrative and tax-related work. Despite the benefits of outsourcing the payroll process, some SMEs and solo entrepreneurs decide to do it on their own to save money. No doubt it is an excellent way to save money but if you do it without prior knowledge or research you may end up wasting your precious time and energy on it.

If you are determined to undertake the payroll process manually, there are a few stages of the process you need to know in detail. Depending on the size of your business or company, this can be a very complicated process.

This article will help you in getting a better understanding of the entire process, and the required steps you need to take to run your payroll process successfully.

Stages of the Payroll Process

There are a total of three main stages of the payroll process. These steps have a series of steps an employer needs to follow to establish a well-working payroll system.

Stage 1: Choosing Payroll Processing Methods.

1. Find out the resources you will need for payroll processing.

Before initiating the process, get to know the process in detail, plan out your approach and pay attention to areas where you may need extra help. Research every aspect of the process minutely. Get to know your approach thoroughly.

Along with that you also need to keep track of the hardware, software, and external help you need. Keep all the resources you need handy, and learn to use them.

2. Understand the expertise level to manage end-to-end tasks.

To manage the entire process from start to end a certain level of expertise is required. You may need temporary professional help to develop the system and set all the necessary salary parameters in it. You may learn the a-to-z handling of the system to use it on your own later. For this also you can contact the payroll processing outsourcing firm.

3. Identify the tools and technology needed to manage payroll processing based on future staffing goals.

You may successfully create and run a payroll system that is extremely efficient in your current salary model but keep in mind that this system may need certain upgradations over the years of its use.

Identify the necessary tools and technology needed to manage the process based on future staffing goals. Create a system flexible enough to accommodate changes and alterations in the future.

4. Choose the right system – outsourced or on-site.

When it comes to the payroll process an employer always has two options. To go for the payroll outsourcing for the creation of the payroll system or to design it insight. It is advisable for every employer seeking a functional payroll system to choose the option that best suits her/his needs. Considering the factors such as the cost, the number of employees, the complexity of your salary model, etc.

Stage 2: Payroll Process Management.

Now that you have an idea about the basic and technical knowledge about the payroll system it is time to get an insight into your own business.

1. Gather data about the existing and potential various employment and compensation systems you have.

If you want to upgrade your existing system or replace it with a modern one, you first need to have complete information about the current system. The raw data on which the system was built, needs to be forwarded to the new system and the necessary upgrades need to be made.

If you want to rule out an old system. For eg., You wish to implement a new method for a tax deduction and want to erase the existing one. Make sure you have the required raw data to do the change. While building a new system keep in mind that data migration is the most important part.

2. Put in place a tracking system of timesheets or working hours, overtime, performance levels, etc.

While building a payroll system it is important to design a payment system that keeps a record of an employee’s regular performance. A system that rewards an employee based on his dedication to the company is highly appreciated. To do this initially systems must be introduced to keep a track of the employees’ timesheets or working hours, overtime, performance levels, etc.

Payment according to the above factors increases the loyalty and dedication of employees to the company and an enthusiastic and competitive work environment are born.

3. Ensure the accuracy of payroll processing applications for calculation of all compensation elements per tax and regulatory compliance.

Salary plays an important part in an employee’s life, and as an employer, you must understand that the calculation of an employee’s monthly salary needs to be extremely accurate.

Make sure the applications used for calculating all the deductions, taxes, allowances, etc. is precise and flexible to incorporate any alteration.

4. Implement week-over-week and month-over-month tracking systems for calculations of incentives, awards, leaves, etc.

Incentives, awards, bonuses, overtime, leaves, etc. vary every month for each employee. It is extremely essential to have a pre-decided period over which it needs to be calculated, it may be every week or monthly basis. To track it over the period, employers need to employ effective tracking systems suitable to their company.

This eases the part of the salary calculation based on incentives, awards, leaves, etc.

5. Put in place a system to check compliance.

In any organization, ground rules related to its working must be established. The same applies to the payroll process as well. When implementing a payroll system a lot of the organization’s time, effort and money go into ensuring that payroll is compliant through a statutory audit.

From an employee’s fair treatment of labor to protecting the company from unreasonable wage or benefit demands from trade unions or aggressive employees, every organization faces such situations pre-decide compliance plays an important role in it all. But to keep a check on such compliance employers need to establish a special system.

Stage 3: Payroll Processing: Monitoring and Upgrading.

Once a payroll process is successfully created it is extremely necessary to monitor it throughout its work. Also, the system needs to be created in such a way that there is room for future upgrading when need be.

1. Create a reporting framework.

A reporting framework is essential. Establish a reporting framework driven by problems and their solutions. Also, be informed by the data generated.

2. Update systems and methods per revisions in regulations.

You need to keep on updating your payroll processing service and keep on improvising the methods per revisions in regulations. Rules related to payroll processing outsourcing may change and you need to be successful in making the necessary alterations as and when required.

3. Find out the best way to scale up payroll processing taking into account expansion plans.

As a company or business it is obvious to increase your employee number, even branch out and expand your business with the passing years. To accommodate such changes it is necessary to enable your system in the best way possible. Take help from tech professionals in advance if need be.

4. Link payroll document management systems with analytics tools and apps.

To make your system more effective and efficient you can make the most of the analytical tools and apps available. By linking your system to such applications and tools especially related to document management eg. Google sheet, etc. will be of great help. To manually manage all the documents related to payroll can be a tedious and time-consuming task. Also, the chances of misplacing the documents are high.

Challenges in the Payroll system and its One Step Solution.

Payroll System is a complicated system in itself an employer may try his best to create a dynamic system on his own or with minimum assistance but still may face certain problems. Below are a few.

  • Lack of technical support- While developing the payroll system you may or may not get the required technical backing. Especially if you are an SME or a budding business. You may not have the funds to hire a tech professional. Which may ultimately result in the creation of a poorly developed payroll system.
  • Problems in Data Migration- Data migration is the basic factor while developing a new payroll system. Successfully transferring the old data into a new payroll program may be a tricky task and if not handled by trained professionals, it may result in data misplacement.
  • Lack of Understanding- To develop a payroll system on your own you need to have a clear idea of how the salary system works and how the salary of each employee on the various levels is calculated. If this is not done properly errors in the calculation of salaries may occur.

The one-step solution to all these problems is outsourcing the development of your entire payroll system. Finding a potential company to create your payroll processing service can be a hectic job. Comparing the available options and picking the best one is difficult, to free you from this hassle Alliance Recruitment Agency is here to help you find the best fit for your recruitment payroll outsourcing. Our decade of experience enables us to find you a perfect payroll processing outsourcing provider with us. Get in touch with us for further details Today!