Payroll Outsourcing: Paying right, on time
At first, blush, compensating staff at the end of every payment period may seem simple enough—but once taxes, deductions, adjustments, and other requirements are factored in, payroll accounting for even a single employee can quickly become quite complicated. In summation, payroll accounting involves:
- Maintaining up-to-date staff records and documenting staff attendance
- Calculating compensation and deductions
- Reporting and remitting regulatory requirements
Though payroll is primarily a function of accounting, many businesses have their human resources team either handle it themselves or work on it with the accounting department or an independent firm that specializes in Payroll Outsourcing.
Because of the complexity involved, many larger or growing businesses choose to outsource their payroll accounting not just for convenience but for several other benefits. Engaging the services of an accounting firm for payroll, for instance, helps a business ensure its compliance with tax laws and other regulations covering social security and other benefits.
Note that payroll accounting varies between countries and that an accounting firm that provides payroll services for businesses overseas will have to be well versed in those particular countries’ payroll processes. Also note that full-service Payroll Outsourcing may not be cost-efficient for smaller businesses and that the business, rather than the accounting firm, may be financially liable for any errors in calculation.
Accounting and liabilities.
On top of calculating salaries and other payables earned by staff, payroll accountants have several other responsibilities in preparing and disbursing compensation, which include withholding taxes, social security, and other contributions for the business owners and staff. These responsibilities include:
- Arranging payment orders
- Calculating loan repayments
- Issuing digital or hard copy payslips
- Filing taxes for individual employees
- Preparing payroll reports and journals
In the Philippines, payroll accountants are mandated to withhold contributions for the Social Security System (SSS), the Philippine Health Insurance Corporation (PhilHealth), and the Home Development and Mutual Fund (HDMF).
It’s also the responsibility of the payroll accountants to manage payroll liabilities, or a business’ pending, payroll-related debts. Examples of these liabilities include salaries that haven’t been paid yet, taxes and contributions that have yet to be remitted, and even pay for the services of the Payroll Outsourcing firm.
Payroll best practices.
Once time-consuming and labor-intensive as a rule, payroll accounting systems have evolved certain best practices to help facilitate processing and transitioning from one accounting period to the next. These best practices include having reserve cash on hand to make sure the payroll will always be paid out on time in case times get tough.
Payroll accountants would also do well to have reminders in place for when payments are due and to keep tabs on their respective deposit or disbursement schedules. Many businesses also make it a point to have a separate bank account for just their payroll.
It’s also highly recommended for businesses to use payroll accounting software like Peachtree and Quickbooks which combines the traditional payroll and payroll disbursement journals into a single, automated ledger.