5 Basic Steps to Payroll Processing

Paying meticulous attention to the payroll process is essential to ensuring your employees are promptly compensated and that your business continues to operate seamlessly. Processing payroll is a detail-oriented task that requires time and concentration so all the steps are accomplished correctly. Improper payroll processing can have adverse effects on your business and your relationship with employees, so it’s always important to get it right the first time.

Here at 3rd Arm Admin, we’ve mastered the essential steps of payroll by providing years of payroll services to our clients. Here are the 5 steps that lay the foundation of accurate payroll processing while preventing costly payroll mistakes:

1. Choosing a payroll schedule

There are three common payroll schedules, namely: weekly, fortnightly, and monthly. A business’ payroll schedule determines how regularly you pay your employees and should take into account the structure of your business and how it operates Your payroll schedule should suit your particular business needs and “make sense” in the grand scheme of things to optimise your cash flow.

Obviously the more often you pay your employees then the more often payroll needs to be processed and the more often the money comes out of the bank.  This probably equals happy staff compared to those being paid monthly but it is also about what works for your business.

2. Logging employee information

This step is imperative for accurate payroll – every bit of information related to employee wages should be recorded accurately. Payroll records include hours worked, leave taken, timesheet records, base salary amount, any overtime amount, bank account numbers, IR numbers, date of birth, tax code and Kiwisaver details.

To enable accurate payroll your also need information such as your employee work pattern – do they work 20 hours being Monday – Friday 4 hours / day or is the 20 hours 10 hours on Monday and 10 hours on Wednesday.  All of this information affects the calculation of leave and impacts calculations within your payroll software.

3. Calculate gross amount

An employee’s gross amount should be based on their salary or hourly rate. However, this amount can vary during each payroll schedule due to factors such as overtime, bonuses, leave days, sick days, commission, to name a few. Do they receive a weekly allowance, for example, tool allowance?  What does the contract say about whether they get paid this if they are on Annual Leave?

Other things to check are whether the minimum wage obligations are still being met if your employee is salaried and has worked additional hours.  Make sure everything is accounted for in this step so your employee is receiving the correct amount of compensation for their work.

Check all leave rates are calculated correctly and that any recurring payments, allowances or deductions are accounted for.

4. Determine payroll deductions

After calculating an employee’s gross pay, you can now determine the deductions. For NZ employees, deductions include taxes for IRD (PAYE or Withholding Tax), KiwiSaver, student loan payments, child support payments, union fees, court fines, Work and Income deductions and others.

Ensure you complete your payday filing with IR on time (within 2 days of each payday) and ensure all payments are made to IR on time (normally the 20^th of the month following) Late filing, late payments, and shortfall payments all have penalties that can quickly add up.

5. Create a payslip and distribute

All the information regarding an employee’s remunerations and deductions should now be clearly presented on a payslip and given to respective employees confidentially. It should be consistently organised in a way that makes it easy to find the correct information. You should then transfer the funds to the employee’s bank account via electronic fund transfer and make the appropriate payments to IRD for salary and wage deductions.

Payroll Services from the Proven Experts

3rd Arm Admin provides payroll services for many businesses across New Zealand. With our combined experience and expertise, we provide complete administration and bookkeeping solutions customised to suit you and your business needs.

Talk to the 3rd Arm Admin Team today about how we can seamlessly complete all your bookkeeping and administration tasks so you’re able to free up time and resources for actual business development – just call 04 232 9199 or fill out your details below and we will be in touch!