What is Payroll Management?

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  • Written By: Osmand Vitez
  • Edited By: Kristen Osborne
  • Last Modified Date: 01 October 2019
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Payroll management is the process companies use to compensate workers for their labor. This process also includes withholding payroll taxes such as income, social security, and unemployment, as well as garnishments. Many companies use a computerized business or accounting software package to aid them with this business function. Payroll managers and clerks in the human resource department typically maintain employee files where the company has written records to support the deductions withheld from the employee’s paycheck.

Companies typically develop standard payroll management systems to ensure all employees fill out the necessary paperwork for working in a company. This information contains personal information relating to an individual’s national identification, place of residence, documentation of experience, and tax documents. Paperwork can relate to federal, state, or local government agencies. Companies must maintain these documents in their payroll management system the entire time the employee works for the company and for several years after the company or employee terminates the working relationship.


Many business and accounting software packages or applications contain payroll modules companies can use for payroll management. These modules can help automate the systems that calculate payroll taxes and wage garnishments. Most software packages and applications on the market today allow companies to update their payroll modules each time changes are made to payroll tax laws. This saves the company time, especially if the company has multiple national or international locations. These modules can also help companies separate their payroll management systems by worker class, such as salary, hourly or other classifications.

Business owners should consult an attorney to ensure their payroll management systems include all pertinent documentation for hiring workers, maintaining payroll information and terminating employees. The legal paperwork involved with payroll management can quickly become tedious and require copious amounts of time and effort to keep straight. Owners who fail to keep payroll records up to date can face severe penalties from government agencies regarding payroll information. Not only can this cost the owners large amounts of capital, but it can also force smaller businesses into bankruptcy.

Small businesses or owners with little experience in payroll can outsource this process to a third party. While outsourcing payroll does not absolve the company’s responsibility entirely, it can help owners avoid completing the majority of paperwork relating to payroll. Third party processors also offer companies the ability to conduct background or credit checks on potential employees, which can help limit or prohibit future problems from devious or malcontent workers.


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Post 3

How does payroll management differ in small businesses and large corporations? Do bigger businesses essentially use the same principles on a larger scale?

Post 2

@gravois - I would be interested to know how your experience goes. My company outsourced their payroll about two years ago and it was immediately a disaster. Mistakes happened all the time, including with some of the executive pay. Not only were there mistakes, but it was hard to get the payroll management company to take responsibility. When the contract was up after the first year my company brought payroll back in house.

Post 1
I run a small business with 35 employees and we recently made the decision to outsource our payroll management services. We looked at several different companies and found one that could provide all the services that we needed at a cost that was lower than what we currently paid.

It did lead to us having to lay off an accountant, but in the long run it will be good for the company. Also, we will probably have more reliable payroll management. This was never a huge problem for us, but mistakes did happen.

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