Employees must be compensated financially for their work. That’s a fact laid out in every employment contract. But the process of payroll is extremely complex and involves many parties. There are many requirements, particularly for companies operating on a global scale.
However, payroll systems offer companies the opportunity to make things easier by automating the entire payroll process. This helps save money and time, avoid errors and ensure quality.
Definition: What is Payroll?
Let’s begin with a definition of what exactly payroll is. Payroll is the modern term for what used to be called Payroll Accounting (or Entgeltabrechnung in German).
It’s the generic term for payroll accounting and covers all payments made directly to or for employees. But it doesn’t just refer to wages and salaries. It also refers to additional payments like voluntary social benefits, bonuses, taxes and company cars. Payroll encompasses both the salary statements and the entire process associated with it, including time recording.
Payroll: Functions and goals
The HR department is responsible for ensuring staff receive their payslips on time and on a regular basis. But to get to this point, it’s not just wages and salaries that have to be calculated and paid. The payroll process also includes the payment of taxes and social security contributions, as well as the submission of legally compliant documentation.
What does the Payroll department do? Payroll involves recording exactly who is employed by the company and how they get paid. In the context of financial and tax law, the term also refers to non-cash benefits as well as non-wage labour costs and social security contributions. We can break the whole payroll process down into three steps:
- Preparation of all relevant employee data and documentation required for payroll.
- Calculating the payments, as well as tax and social security contributions.
- Sending notifications to social security institutions, completing the month-end closing, money transfers, postings to the financial accounting department and finally sending salary statements and payments to the employees.
There are lots of people involved in this process, both internally and externally. From HR staff, payroll accountants, and tax advisors, to the tax office and social insurance employees. Payroll is a very complex process.
The main goal of Payroll is to record, manage, prepare and process employee data relevant to their compensation. You must take into account all payroll tax and social security aspects into account. It’s vital to help reduce the efforts for payroll accounting to a minimum and avoid errors as far as possible.
Payroll - key questions for the right software selection
Ensure cloud-based and efficient payroll
Why is the use of payroll systems essential for companies?
Creating a payroll process is demanding and involved many stakeholders. Furthermore, constant changes in payroll tax and social security law make it difficult to standardize processes. Payroll is particularly challenging in companies with complex compensation systems consisting of benefits, expenses or employee participation. However, in every single situation, it is expected that payroll take the right steps and comply with the relevant standards and requirements.
This means you need payroll experts. In fact, many companies separate payroll from their HR duties, leaving it in the hands of their tax advisors. But this is the crux of the matter. Tax advisors have the know-how to prepare payroll accounting, but the rely on receiving all relevant information.
That’s why a payroll system allows you to automatically transfer the data recorded in the HR system of an external service provider before transferring it back into the system after the completion of payroll. This significantly reduces the effort needed for the data transfer and lowers the error rate to almost zero.
Flexible employment relationships are also a particular challenge for payroll accounting. This challenge will only increase with the current difficult economic times.
In addition to part-time and temporary employment, there are other work models that allow companies to respond flexibly to their order situation. For example, there has been an increase in companies working with freelancers, lending or borrowing workers and relying on on-call employees.
Although conventional employment already has well-established standards and laws, flexible employment still leaves room for many pitfalls. These include regulations and obligations in personnel leasing and the question of counterfeit freelancers. There are also a number of questions that arise for on-call employment, especially around minimum compensation and compulsory insurance.
Furthermore, international payroll for global companies poses its own set of unique challenges. You must pay attention to the locations of employees and their local legal requirements. Each country has its own tax, wage and social system structures, as well as legal conditions. You have to pay attention to these. Luckily, payroll systems are now available as global and agile solutions.
In short: Payroll systems now play a key role in the HR IT landscape. And there is a reason for that!
Advantages of using Payroll Systems
Payroll systems allow you to automate most of the payroll process. It relieves the burden placed on HR staff and guarantees stable payroll planning. Ultimately, it simplifies the entire process while also improving accuracy. A payroll system helps save time and money, ensure quality and reduce errors.
A good payroll software will sufficiently handle the preparation and calculation of data, as well as payslips. Some payroll systems also include all the functions of a master data system, plus time tracking interfaces and other programs. Since payroll systems are strictly regulated systems, they also qualify as master data systems.
The main three advantages at a glance:
Payroll systems save time and costs, as well as paper, by automating most of the process steps. This ensures greater efficiency, regardless of the size of the company. It also has the ability to carry out a large number of payment calculations within a short time frame, leaving HR staff more time for other tasks.
Payroll systems consider the legal and regulatory dimensions within their scope of responsibilities. This helps avoid careless mistakes and saves the company from possible penalties. Payroll systems operate in compliance with data protection regulations and safeguard the sensitive data of employees and the company.
Payroll software simplifies the entire payroll process. All employee data is stored in one central place. Thanks to the interfaces, the flow of information between all parties involved functions smoothly and authorized people have access to the data at all times. Automatic notifications about the receipt of payroll also ease communication. Payroll software often includes time recording and documentation of work steps.
Further advantages can be gained by outsourcing your payroll to external service providers. This is why many companies choose to use payroll services.
Payroll Services: Definition & areas of application
Payroll processes often consume a huge amount of time and resources. Therefore, more and more companies are outsourcing payroll and payroll accounting tasks to payroll services, thus freeing up capacity for the HR team and saving costs.
Definition: What are Payroll Services?
Payroll services providers are experts in payroll accounting. They handle payroll for their clients and simplify it through automation. Companies can outsource some or all of their payroll to a payroll service. External payroll services providers know the most important components of payroll accounting. They offer a combination of in-depth and up-to-date knowledge and can optimally serve the company’s requirements. Above all, payroll service providers guarantee accuracy and legal compliance of payroll accounting.
HR Consulting
Areas of application of Payroll in the company
The tasks of a payroll service can vary a lot. They include:
Payroll
The core business of a payroll service is preparation of payroll. This includes:
- Monitoring hours
- Calculating pay and withholdings
- Processing direct debits
- Completing tax documents
- Managing the company’s employee portal
The service covers the entire payroll process, ensuring accurate and timely payroll. By automating the main processes, wage calculation time significantly reduces.
Payroll can be particularly costly and time-consuming for foreign employers. Legislation is also often ambiguous and requires a lot of research. For example, foreign companies must pay taxes and social security contributions for their employees in Germany, even if they do not have a branch in Germany.
Tax services
Payroll services ensure that all employee payroll taxes paid directly to to the tax authorities on time. Many providers also offer other tax services, like calculating company tax brackets, exactly what taxes are due and when those due dates are.
Most payroll services also complete tax documents for the business and file them on time to ensure the required tax compliance. Since Payroll service providers are familiar with corporate tax laws, they can keep accurate tax records to prevent potential tax problems.
Some payroll service providers also take care of employee tax forms and review, print and distribute them when tax season begins.
Service for employees
Payroll service providers give employees the ability to view all important and essential payroll-related documents in employee portals. They can also change personal data in the portal without having to involve supervisors.
Work regulations
Some payroll services also help companies comply with labor regulations. They know the different regulations that apply to companies of different sizes, employee types, and industries, and point them out to their clients. They also ensure that companies pay their employees fairly and comply with the law.
Reports
Payroll Services can generate reports that provide a deep understanding of how the company operates. They offer insights into the actual working hours of employees, individual teams, and entire departments, as well as their productivity and other work-related characteristics. These reports help employers improve the utilization of resources, money, and time by them and their staff.
Time Documentation
Especially when employees work from home, time documentation becomes crucial to distinguish between private and professional matters. Payroll Services can incorporate hours recorded using time-tracking tools directly into the billing process. Nowadays, Payroll Services offer a wide range of features that assist a company in enhancing its capabilities and employee retention, while simultaneously ensuring work relationships are compliant with the law in every aspect.
What does a company need to use Payroll services?
It is crucial that companies maintain and update the master data and transaction data of their personnel. This means that personal data, contracts, questionnaires, travel expenses and certificates can easily be transferred to the tax advisor or payroll service provider together with the other payroll documents. In addition, companies need the appropriate interfaces to be able to sufficiently integrate a payroll system into their HR work. This saves time and resources in reconciling data and spreadsheets.
Additional functionalities:
Employee Self Services
Employee Self-Service enables employees to view and update their own absences, personnel data or working hours. Absences such as sick leave, vacation or parental leave can thus be documented more quickly and effectively. This ensures transparency and saves administrative effort.
Integration of time recording
By integrating time tracking with the payroll system, you can fully automate this HR process. The direct connection of time recording and payroll enables immediate accounting.
Direct Transfers
Direct transfers are another important component of a payroll system. They are cost-effective and guarantee that earnings are received in the right account on time and there are no unnecessary waiting times.
Automatic updates
Payroll systems usually have automatic updates to legal requirements and backups of data via storage solutions like iCloud or OneDrive.
Payroll Manager/Payroll Specialist: Duties & Definition
Payroll employees must not only have extensive knowledge of employment, social security, and tax law, but must also keep up to date with complex policies and procedures due to the large number of changes. If supervisors and other HR managers make agreements without a thorough knowledge of the legalities, Payroll Managers should recognize those in order to protect the company or the board of directors or senior management from potential criminal penalties.
Definition: what is a payroll manager/payroll specialist?
The person who deals with Payroll professionally is known as Payroll Manager or Payroll Specialist. Payroll Managers or Specialists deal with the processing of payroll. In particular, they have to keep an eye on deadlines and legal regulations, and manage special payments and bonuses. The area of responsibility of Payroll Management also includes time recording and monitoring the working hours as well as individual employee absences.
Tasks & fields of activity of a Payroll Manager/Payroll Specialist
Payroll Managers often take on general administrative tasks in addition to payroll and, depending on the size of the company, also take care of financial accounting. Their duties include:
- Preparation and administration of payrolls
- Compliance with collective bargaining regulations and deadlines for tax payments and social security contributions
- Correspondence with social security agencies and offices
- Accompanying payroll tax and social security audits
- Preparation of reports for the HR department
- Maintenance of personnel master data and keeping personnel files
- Review of collective bargaining regulations
- Support of the accounting department
Salary of a Payroll Manager/Payroll Specialist
A commercial education is required to be hired as a payroll manager. It is also possible to enter the company through further vocational training. In order to keep up with technological and legal developments, even experienced Payroll Managers/Payroll Specialists must undergo ongoing training. Salaries vary according to responsibility, experience and region and range from EUR 32,300 to EUR 54,900.
What is Payroll?
Payroll is the generic term for the entire payroll accounting process and includes all payments made to or for employees.
Why is Payroll so important?
Payroll systems provide a wide range of functions that help a company improve its capabilities and employee retention while still complying with the law under labour regulations.
What does a Payroll Specialist do?
Payroll Managers or Payroll Specialists deal with the processing of payroll. In particular, they have to keep an eye on deadlines and legal requirements as well as manage special payments and bonuses.
What are the advantages of Payroll?
A Payroll system aims to automate the payroll process as much as possible. It helps to save time and costs, ensure quality and avoid errors.
What is the goal of Payroll?
The goal of Payroll is to record, manage, prepare and process employee compensation-related data. This is always done in consideration of all payroll tax and social security aspects.
Payroll now plays a key role in the HR IT landscape. The selection of the appropriate payroll system is therefore associated with a particularly strategic and long-term decision.
Conclusion: Payroll as one of the most complex topics in HR
Payroll is a vital part of any company. The multitude of legal regulations and the fact that companies are becoming more and more international due to increasing globalisation have led to the fact that payroll accounting is becoming more and more complex. The selection of the appropriate payroll system is therefore associated with a particularly strategic and thus long-term decision.
Due to the high level of complexity, many companies decide to outsource payroll accounting – at least in part – to external service providers, so-called Payroll Services providers. This is a sensible addition for almost every company. The external payroll experts have the necessary know-how and expertise to implement payroll in compliance with laws and regulations in day-to-day business. After all, payroll errors are not only annoying – they usually cost the company a lot of money and thus have economic consequences.
