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What is Payroll and How Does it Impact Employees and Employers?

what is payroll

What is Payroll and How Does it Impact Employees and Employers?

As a business owner, understanding the complexities of payroll management is crucial, even though payroll is often perceived as a dull or intricate process. Although payroll may not seem exciting to those unfamiliar with accounting or finance, it is one of your most significant monthly expenses, and getting it wrong can have severe repercussions. This guide aims to help more than 60 million small business owners in India navigate the entire payroll process seamlessly. By breaking down the intricacies, we demonstrate how simple it can be to get payroll right. In this comprehensive guide, you will learn the fundamentals of “what is payroll”, why it is essential, how it works, what a successful payroll process entails, and much more. Let’s start by exploring the basics first.

What is Payroll?

Payroll refers to the systematic method of providing financial compensation to workers in exchange for their labor within a specified timeframe. It is a critical business operation that necessitates collaboration between various organizational units, such as the financial and human resources, and workforce management sectors.

Payroll is more than just the process of paying employees – it’s the vital connection point between a company and its workforce. An effective payroll system impacts both employees and employers in profound ways.

  • For employees, payroll is quite literally their livelihood. It represents the compensation they receive for their labor, skills, and time dedicated to their employer. Timely and accurate payroll is crucial for employee morale, job satisfaction, and financial well-being. Payroll errors, delays, or lack of transparency can severely damage trust, productivity, and retention.
  • But payroll is equally critical for employers. It is a major expense that directly impacts net profitability and cash flow. Payroll also has significant legal and compliance implications. Employers must ensure deductions for taxes, benefits, and other withholdings are properly calculated and remitted according to federal, state, and local regulations. Failure to do so can result in costly penalties and damage to the company’s reputation.


There are several methods for executing payroll operations:

  • Excel-based manual calculations and records
  • Third-party provider processing
  • Dedicated payroll software automation

Benefits of Implementing Payroll In Your Organization

A recent European survey by SD Worx found that 44% of 4,000 employees had late pay, with 48% also paid incorrectly. 80-93% felt negative impacts from delays. Late pay was attributed to poor management (61% in UK) or financial instability (33% average), which results in the need for payroll for your business. These findings underscore the critical importance of implementing a reliable and efficient payroll system for businesses.

Here are some key benefits of implementing a robust payroll system for an organization, with context on how it impacts both employees and employers:

For Employees:

  • Accurate and Timely Pay: Employees expect to receive their full compensation accurately and on schedule. Efficient payroll processing ensures employees are paid properly for their work, preventing financial stress and maintaining trust.
  • Transparency: Clear payslips and reporting provide transparency into how pay is calculated, including deductions for taxes and benefits. Employees can easily understand their net pay.
  • Compliance: Payroll systems help employers properly calculate and remit required taxes and withholdings on the employee’s behalf, ensuring they meet all obligations.
  • Self-Service: Modern payroll solutions offer self-service portals where employees can access pay stubs, update personal information, and even adjust tax withholdings as needed.


For Employer:

  • Cost Control: Automated payroll systems help track labor expenses, identify overtime trends, and provide insights to keep compensation costs in check.
  • Compliance Management: Employers must comply with a myriad of federal, state, and local tax laws. Payroll software handles tax calculations, filings, and proper remittance of withholdings.
  • Reduced Administrative Burden: Manual payroll processing is time-consuming and error-prone. Payroll software automates calculations, tax filings, and record-keeping.
  • Data and Reporting: Detailed payroll data generates reports organizations can leverage for budgeting, workforce planning, and strategic decision-making.
  • Integration: Modern payroll integrates with accounting, HR, and other systems to streamline processes, eliminate redundant data entry, and enhance efficiency.
  • Employer Reputation: Offering a seamless payroll experience demonstrates integrity and accountability, which enhances the organization’s reputation as an employer of choice.

By implementing an effective global payroll services system, employers provide employees confidence and peace of mind, while gaining efficiencies, compliance, and data-driven insights to control costs and maintain a productive workforce. Payroll done right benefits the entire organization.

What are the Stages Involved in Payroll Processing?


The typical stages involved in processing payroll can be summarized as follows:

  • Onboarding Employees: The first payroll step involves onboarding new hires and compiling a list of employees to receive salary payments.
  • Gathering Employee Information: Collecting and maintaining accurate employee data such as personal details, employment information, tax withholding preferences, and payment methods.
  • Tracking Time and Attendance: Recording and verifying employee work hours, overtime, leaves, and any other attendance-related information.
  • Calculating Gross Pay: Based on the employee’s pay rate, work hours, and any additional compensations like bonuses or commissions, the gross pay for each employee is calculated.
  • Determining Deductions and Withholdings: Calculating mandatory deductions such as federal and state taxes, Social Security, and Medicare, as well as voluntary deductions like retirement contributions and health insurance premiums.
  • Calculating Net Pay: Subtracting the deductions and withholdings from the gross pay to arrive at the net pay amount for each employee.
  • Preparing Payroll Documents: Generating payslips or paychecks, direct deposit files, and other relevant documents for payment distribution.
  • Processing Payments: Issuing paychecks or direct deposits to employees’ bank accounts, as per their preferences.
  • Reporting and Remitting Taxes: Filing payroll taxes to the appropriate government agencies.
  • Maintaining Records: Keeping accurate and up-to-date records of all payroll-related information, including employee data, pay calculations, tax filings, and payment history.
  • Reconciling and Reviewing: Periodically reviewing and reconciling payroll accounts, identifying any discrepancies, and making necessary adjustments.

By incorporating the global payroll best practices, organizations can enhance efficiency, ensure compliance, and create a consistent and reliable payroll experience for employees worldwide.

Current Payroll Landscape in India


To gauge the current payroll landscape in India, RazorpayX Payroll commissioned a survey by the International Research Bureau, which interviewed HR executives from 163 organizations across 12 key industries.

Key Findings:

  • Payroll Automation: All surveyed businesses automated payroll with software. Only 37% perform manual payroll.
  • Functional Limitations: 31% of organizations report payroll accuracy below 90%, indicating a lack of functional prowess in current payroll tools.
  • Limited Insight: Most organizations use sub-optimal payroll software lacking fundamental features like automated compliance, speedy and accurate processing, and data security.

Business process outsourcing (BPO) can address these challenges by providing specialized services to manage payroll functions efficiently.

Simplify Payroll Processing with Procloz


Now that you can answer the question “what is payroll?” you’re now prepared to embrace advanced payroll solutions for your organization. 

Get started with Procloz, your reliable partner. Procloz offers cutting-edge payroll solutions for effortless, accurate, and compliant processing. With automated calculations, seamless integration, and transparent pay, Procloz puts payroll on autopilot. Discover the Procloz advantage – contact us for innovative payroll transformation.

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what is payroll

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What is Payroll and How Does it Impact Employees and Employers?

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By Robbin Roy

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