Managing payroll in your business

An organisation’s payroll function can be a confusing and time consuming task, but there is a range of options available that can help.  Rather than battling away in isolation, an organisation could consider acquiring an appropriate software package, using a third party payroll contractor or outsourcing the payroll function to an internet-based provider.  Choosing the right option will inevitably be a case of balancing the cost of each option against the advantages to be gained.  The main options are outlined below.

Payroll software

Many employers use payroll software purchased from a third-party supplier.  The software is designed to assist the user with processing payroll information, producing an employee’s payslips, IRD schedules and management reports.  Some systems are able to be integrated with the organisation’s primary accounting system. This allows the payroll transactions (e.g. wage and PAYE payments, month end journals and employee provisions) to be updated to the general ledger on a weekly or monthly basis.

These software systems, once set up with the required deductions and calculations, can efficiently produce the required information for each pay-run.  Where an employer has only salaried staff, this information can be produced with minimal time and effort as the same information is generally used for each pay-run, with only staff changes and leave information required to be input into the system.

Payroll software usually requires an initial software licence to be purchased, and an ongoing annual fee for upgrades as required.  The charges for this will vary depending on the software provider.  Some providers offer a free trial system that can be downloaded from their website so users can try before buying.

While these software programs are regularly updated in line with changes in legislation, the employer will still need to have a payroll administrator who keeps up to date with legislative changes.

Outsourcing

Employers who have a large number of employees that are paid on an hourly basis, or who simply don’t have the resources to complete their payroll themselves, may wish to consider outsourcing their payroll process or acquiring the services of a payroll contractor.

Internet-based

Using an internet-based provider, timesheet information is either inputted by the employer or sent through in a raw form to be processed. The provider can generally do the following tasks:

  • Produce and distribute payslips.
  • Produce and file PAYE schedules.
  • Withdraw funds from the employer’s bank account and make payroll and PAYE payments directly.
  • Maintain records such as annual leave, sick leave and other entitlements.

The employer can access their payroll information remotely through the provider’s website thereby removing the need for the employer to install, maintain and administer their own payroll system.  Some systems also allow employees to log on and print out payslips as and when required.

Payroll contractors

For those employers who prefer a more traditional approach, similar services can be obtained by acquiring the services of a payroll contractor.  As with an internet-based provider, the information (such as timesheet and employee information) can be processed either by the employer or the contractor.  Typically, the contractor will use the employer’s payroll system, in which case the employer would still incur the cost of maintaining that system.

With any option there should be a reduction in the workload associated with the payroll process and the requirement for payroll staff to keep up to date with current payroll-related legislation.

Outsourcing the payroll function will come at a cost, but the cost could be outweighed by the time saved, and peace of mind knowing that the organisation’s legal and tax obligations are being looked after.

Published Spring 2012.

Serious about your success?