What is a Payroll Processor?

N. Madison

A payroll processor is an individual or entity responsible for processing a company’s payroll. A person or company who serves as a payroll processor typically has the job of processing payroll accounts and preparing employee checks, direct deposits, and other methods of payment. In some cases, he may be responsible for processing independent contractor payments as well. As part of this process, payment processors are usually charged with withholding taxes from employee payments in accordance with applicable laws in the particular jurisdiction. Likewise, he may have to withhold money for such things as retirement accounts and other voluntary employee contributions.

Employee timesheets are used by a payroll processor to issue pay checks.
Employee timesheets are used by a payroll processor to issue pay checks.

When an employee, and sometimes an independent contractor, is paid money due by a company, it is usually a payment processor who makes this happen. A payment processor uses the records provided by a company to determine how many hours a person has worked and his hourly wage. If a person receives a set salary, however, the processor may instead use company records to determine the salaried amount owed in a pay period. This amount becomes the gross pay that the employee is due, though it may not be the amount he actually receives.

Detemining the correct amount of payroll deductions is one job of a payroll processor.
Detemining the correct amount of payroll deductions is one job of a payroll processor.

In most places, a payroll processor does not simply prepare employee checks based on the gross amount of the employee’s pay. Instead, he is often required to withhold a range of mandatory taxes from the employee's payment. He may also, however, withhold amounts for things the employee has agreed to. For example, he may have to withhold contributions for such things as retirement and medical insurance accounts. Payroll withholdings may vary depending on the jurisdiction, employer, and individual employee's wishes.

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A payroll processor may sometimes have to adjust an employee's pay from the base amount when preparing paychecks. For example, he may have to make adjustments for such things as vacation or sick time in some cases. He may also adjust an employee's pay for leave time. In some cases, a person or company with this title must also calculate the amount that is due and adjust an employee’s payment because of overtime pay.

Often, a payroll processor is an individual, but the task is sometimes handled by an entire team, department, or payroll company. Sometimes, a payroll processor is a company employee who handles the payroll processing for at least one employee. In very small companies, the owner of the business may process payroll payments himself. In some cases, however, entire departments are dedicated to payroll processing, and some companies even outsource payroll processing to payroll services.

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