If you’re starting a small business and hiring employees, mastering payroll is likely to be one of your first major hurdles. Dealing with payrolli ...
How Long Does Payroll Take To Process?
Paying employees might sound simple, but dealing with payroll tends to be a hassle that requires real time and effort. For starters, you’re responsible for gathering all employee compensation information for the latest pay period – from tips and timesheets to bonuses and commissions – and ensuring it’s all accurate and approved.
Only then does the real work, of calculating taxes and other deductions, begin. So how long does all this take? Businesses vary in size, so there’s really no one-size-fits-all answer. Let’s just say that when you’re doing payroll, it pays to be patient.
You’ll likely face many questions. Are the wage and total payment accurate? Do you have the required funds and account number for the correct financial institution? What’s the best way to keep payroll records, and should you hire external payroll services?
Thankfully, this guide contains all you need to make the process go smoothly, and quickly.
What Is Payroll Processing?
Payroll processing is a series of steps that result in your employees getting paid for their work. Key elements include managing tax withholdings, such as for social security, and deductions for benefits like health insurance.
Some companies process payroll manually while others embrace payroll software to simplify the process. Businesses may also outsource payroll processing to a full-service provider, like a professional employer organization. However your business chooses to handle payroll, making sure everything is processed accurately and promptly is crucial.
One of the most important decisions when you hire employees is determining their pay period. The frequency at which you process payroll and pay employees is known as a payroll cycle, or pay schedule. Here are the most common options:
- Weekly – typical for hourly employees, results in 52 checks per year
- Bi-Weekly – used for hourly and salaried employees, 26 checks per year
- Semi-Monthly – typical for salaried employees, 24 checks per year
- Monthly – common for salaried employees, 12 checks per year
Your choice should be driven by the nature of your business and employee base. It’s important to review your state’s guidelines on payroll schedules, and to stay in compliance.
Payroll Processing Steps
To determine how long payroll should take to complete, it’s best to examine the steps involved.
Review Employee Time and Attendance
At the end of each payroll period, you’ll need to gather employee timesheets or review the data from your time and attendance software. The data should show how many hours employees worked, whether or not they worked overtime, and any paid time off they used. It should also include data on your salaried employees, as well as their bonuses and commissions.
Before this data reaches the person responsible for payroll processing, it should go through a payroll payments approval process, for compliance reasons. Each employee’s hours and used vacation or sick days should be approved by a supervisor.
This catches any errors or discrepancies and ensures pay totals are accurate before getting processed. It’s also important to retain timesheets and approval data for HR and compliance purposes.
After you gather and review time and attendance, it’s time to do the payroll calculations.
Calculate Gross Wages
Gross wages represent an employee’s total pay before any deductions or tax withholdings. The gross wages of a salaried employee can be calculated by dividing their annual salary by the number of pay periods in the year. Thus, the pay-period gross wages for a staffer who makes $60,000 working for a company that pays semi-monthly is $2,500.
For hourly employees, calculate their gross wages by multiplying the hours worked by their hourly pay rate. So, a cashier who makes $17 an hour and works 36 hours in a one-week pay period has gross wages, for that period, of $612.
Calculate Taxes and Withholding
Next, it’s best to calculate any deductions and withholdings. Be sure to subtract any pre-tax deductions, like 401k contributions and health insurance, before calculating the taxes owed by each employee based on gross wages. Common employee taxes include federal and state income taxes, FUTA, SUTA, and FICA.
Once the tax calculations are made, don’t forget to account for any post-tax deductions, like Roth IRA contributions. Subtracting taxes and withholdings from employees’ gross pay provides you with their net pay, which is the amount they actually receive on their paycheck.
Once you’ve made all your calculations, you’ll submit your payroll file to your bank for processing. If your employees receive direct deposit payments, their pay will be transferred into their bank account using ACH payments. If they do not, you’ll need to print and distribute paper checks. This is usually done by the accounting department, HR, or a payroll service provider.
In addition to paying your employees, you’ll need to file and pay the appropriate federal and state payroll taxes. Setting up a regular deposit schedule helps keep you in compliance and ensures you meet the appropriate filing deadlines.
How Long Does Payroll Take to Process?
Now we’ve come full circle, back to the big question.
To figure out just how long this process will take, it’s important to take a few key elements into account. If you’re a small business with just a handful of employees, your payroll processing may not take very long at all.
Still, doing payroll manually takes much longer than hiring a payroll service provider. Manual calculations around wages, withholdings, and deductions are often cumbersome and time consuming without the help of software or a bookkeeper.
But a payroll service provider typically needs just a day or two to gather information, make calculations, and prepare and submit the payroll file. If you’re processing manually, the work might take a week or more.
Once the payroll file is submitted to the bank, it usually takes 2-3 days for wages to be deposited into employee bank accounts or paper checks to be cut and mailed.
Payroll Processing Tips
While bank turnaround times are mostly out of your control, there are several ways to cut down on internal payroll processing times.
Stick to a Routine
Create a payroll calendar that highlights the year’s pay dates and keep it visible. Don’t wait until the last minute to collect timesheets, as this can leave you scrambling and prone to mistakes.
Use your pay dates to keep yourself prepared, by setting your own internal deadlines for payroll processing.
Use Timekeeping Software
Timekeeping software can greatly reduce timesheet collection and approvals. To streamline the process further, choose a system that integrates with your payroll software. This allows your employee timesheet data to be directly fed into your payroll, eliminating manual entry.
Invest In Upgrades
If you’re running your payroll manually, your processing time is likely to be considerably slower than a business that uses payroll software or a payroll service provider. You’re also more likely to make errors, and correcting them will add even more time to your processing.
Investing in the latest payroll software or a payroll service provider will speed up your payroll and ensure accuracy.
Processing payroll is a necessary, if often tedious, part of running any business. Any of several intricate steps can lead even the most patient business owners and HR professionals into frustration and error.
That’s why it’s wise to take advantage of some of the more advanced solutions out there, like payroll software and payroll service providers. Your processing time will fall and you’ll have peace of mind, knowing everything’s being done right.
5 Best Payroll Card Providers
Published on September 29, 2022
What Payroll Taxes Do Employers Pay?
Published on September 26, 2022
Payroll taxes are a key payroll expense for every employer. Whether they are withheld from your employees’ wages or set aside by the business forp ...
What Is a Payroll Service Provider?
Published on September 26, 2022
A payroll service provider, as defined by the IRS, is a third-party service hired to fulfill a business’ payroll and employment tax obligations.Th ...