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What Is Payroll?

Payroll is the compensation a business must pay to its employees for a set period or on a given date. It is usually managed by the accounting or human resources department of a company. Small-business payrolls may be handled directly by the owner or an associate.

Increasingly, payroll is outsourced to specialized firms that handle paycheck processing, employee benefits, insurance, and accounting tasks, such as tax withholding. Many payroll fintech firms, such as Atomic, Bitwage, Finch, Pinwheel, and Wagestream, are leveraging technology to simplify payroll processes. These solutions pay employees with greater convenience and speed and provide digital payroll-related documents with innovative technology-enabled services required by the gig and outsourcing economy.

Payroll can also refer to the list of a company's employees and the amount of compensation due to each of them. Payroll is a major expense for most businesses and is almost always deductible, meaning the expense can be deducted from gross income lowering the company's taxable income.Payroll can differ from one pay period to another because of overtime, sick pay, and other variables.



(1) Payroll is the compensation a business must pay to its employees for a set period and on a given date.

(2)The payroll process can include tracking hours worked for employees, calculating pay, and distributing payments via direct deposit or check.

(3) However, companies must also perform accounting, record-keeping, and set aside funds for Medicare, Social Security, and unemployment taxes.

(4) Companies can use professional services and outsource their payroll or use cloud-based software if they do not want to do it themselves.

(5) Calculating payroll involves many components and can be complex.

Advantages and Disadvantages of Using Professional Payroll Services

One major benefit of payroll services is their ability to produce a variety of reports that simplify accounting procedures and help companies ensure they are in compliance with legal and tax filing requirements. The payroll service may also maintain a record of how much vacation or personal time employees have used.

With respect to disadvantages, when companies outsource their payroll system, they must rely on individuals outside the business for accurate accounting. In the event of an error, the company's on-site personnel must deal with upset employees. Companies might also face tax penalties for errors made by the payroll service.

Another disadvantage are that payroll services are more expensive than running payroll in-house. The services may charge a set monthly fee or offer different payment structures for varying tiers of service. Because of their cost, payroll services may not be the best option for small companies with tight operating budgets.

Pros of Professional Payroll Services

  • (1)Access to a variety of reports
  • (2)Simplified accounting and tax compliance
  • (3)Record of vacation time and personal time taken by employees

Cons of Professional Payroll Services

  • (1)Individuals outside the business are privy to financial and tax information.
  • (2)Internal staff must still help employees with payroll problems.
  • (3)The company may face tax penalties due to errors by the payroll service.
  • (4)Payroll services can be expensive, which is a concern for small businesses.