Payroll refers to a few things
1. Total amount required to pay workers and employees during a week, month or other period.
2. Paysheet which records wage rates, deductions, and net pay.
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3. Or payroll can refer to the process of actually calculating and distributing wages and taxes.
There are a few different components included and needed for a payroll process to run;
Before you can begin to run payroll, you need to collect some information from your employees.
You will need their home address, personal contact details, bank account details, ID number, Income Tax number, Ethnic Persuasion, Gender, ex.
If you have hourly employees, you have to keep track of the hours they work. You will then pay them for the exact time they worked in pay period.
If you have salaried employees, you will pay them on a average monthly hours worked basis. Control should be kept to ensure full hours have been worked.
You may also want to track the time your employees take off work for vacation, sick time, and holidays. Leave policies are important to implement as they stipulate how many days are allowed to be taken for different types of leave.
A salary is a fixed amount that you can pay an employee. Typically, an employee is given a yearly salary, which is then divided by the number of pay periods in the year.
A wage is what you pay an employee based on the hours worked. You will set a specific rate of pay for each hourly employee. To calculate an employee’s total wages, you will multiply the rate of pay by the number of hours the employee works.
According to the Basic Conditions of Employment Act (BCEA), the maximum normal working time allowed is 45 hours weekly. Any time worked after is overtime and employee is entitled to 1.5 of his normal rate for time worked. Overtime worked on Sunday’s or Public Holidays is paid at 2 times normal rate.
Fringe benefits are a type of compensation. Benefits include any type of contribution, payment or relieve employer gives to employee this can be for education assistance, health insurance, retirement plans, and employee discounts. Payments are usually made directly to 3rd party by employer. Any benefits you offer should be included in payroll. Some benefits are taxable.
Your employees could have additional sources of pay. Service workers may receive tips. Employees must report all tips to you, and there are payroll taxes on tips. You may also choose to pay your employees a commission or a bonus pay. You should include commissions and bonuses when you run payroll.
A deduction is any money you subtract from an employee’s total wages.
You will deduct payroll taxes from the wages of every employee. The amount you withhold from each employee will vary depending on total earnings and how many withholding allowances the employee claims.
Payroll taxes include PAYE (pay as you earn) SDL (skills development levy) UIF (unemployment insurance fund).
A garnishment is a court-ordered deduction post-tax deduction. A garnishment is used to pay off an employee’s overdue debt. You could be instructed to deduct money from an employee’s pay check to pay for unpaid taxes, defaulted loans, and overdue child support. If you need to deduct a garnishment, you will receive a notice from a court.
You will show an employee’s net and gross pay on a pay stub.
Gross pay is an employee’s total pay. SARS wants to know what is employee’s total pay.
Net pay is an employee’s take home pay. Banks and other loan providers typically want to know someone’s net pay.
All of these components needs to be correctly calculated and processed and they will all effect tax calculation and what will be due at the end of pay period.
Records of all payroll activities should be kept for future reference and audit purposes.