What is Payroll? A 2021 Guide to Processing Payroll

What is Payroll

Businesses of all sizes will have to deal with paying salaries to their employees. In 2021, many companies opt to use payroll processing software to do the job. But what are those and how can they benefit your business? Here is a quick look at payroll software, its functionalities and benefits, together with tips on how to choose the right software for your business.

What is the purpose of payroll?

Your organisation has employees working to create value. You get their talent and skills, compensating them with a salary for the work that they do. Payroll refers to several activities leading to employees getting paid. In short, payroll helps to:

  • Pay the employee the correct amount of money
  • Pay the employee on the correct date
  • Track employee work hours paid leave, and other events that might change the salary information, including public holidays

Payroll can have the potential to do other things as well. One common feature around the world is to use payroll to pay relevant taxes. Employers can account for the tax at the time of payment, making it easier for the employees. However, in payroll software in the UAE, this isn’t something you have to think about. In Dubai and elsewhere, employers are regulated by the UAE Labour Law which means they are not obliged to pay corporate income tax.

Other employment rules and regulation at work in the UAE can be reflected with payroll. For example, there are specific rules regarding how employees are paid if they are on sickness leave.

What does the payroll processing cycle look like?

Payroll processing from start to finish involves a number of steps. The cycle looks like this:

  • Creating the organizational pay policy which includes things like hourly pay, other pay benefits, leave policies, and so on.
  • Identifying the different payslip components.
  • Gathering all payroll inputs which include self-reporting and other employee data tracking systems.
  • Calculating the gross salary, other non-statutory deductions, and the net pay.
  • Releasing the correct pay to employees.
  • Depositing other dues if required and ensuring compliance with local laws.

In essence, the above can be divided into three major stages of payroll: pre-payroll, actual payroll and post-payroll processes. Each step is as important as the other in ensuring a smooth payroll processing cycle.

What does payroll software do?

It’s possible to manually take care of payroll and this is what organisations had to do before technology took over. Looking after payroll, even in a smaller company, could take a lot of time and effort. On top of the time spent going over payroll information, small mistakes and human errors could occur and result in larger problems.

The above payroll processing cycle showed how many different components are part of the process. Looking after the information and various steps manually is very inefficient. Technology has come to the rescue and most companies use special payroll software to make sure the information is accurate. Payroll software can play a crucial role in automating many of the above steps. For instance, after the initial data input setting, the software can automatically calculate payroll information in seconds. Furthermore, payments can be scheduled and post-reporting made automatic.

Why a small business needs payroll processing systems?

Payroll processing systems can be a major time-saver for organizations of all sizes. The more employees your business has, the more help automated software can provide. However, small companies can also benefit from payroll processing systems because they help with things like compliance. It’s also important to remember that smaller firms might not want to waste precious resources in calculating payroll information. Your finance and HR department could be doing more important things and therefore, small businesses can benefit from payroll software a great deal.

What are the benefits of payroll software?

But what are the tangible benefits a business can enjoy when it uses payroll software? These are the main benefits your business will notice when it implements a payroll processing system:

  • Automation – Payroll software saves a lot of time and reduces the risk of errors due to automation. Calculations, payments and reporting can be automated which speeds the processing of payroll information and limits the possibility of human error.
  • Security – Software can boost security, especially when you choose the right software. Physical paper versions of payroll can be a security risk, whilst digital files could ensure more privacy in terms of dealing with employees’ confidential data.
  • Accuracy – Payroll software improves the accuracy of calculation, again reducing the risk of mistakes.
  • Compliance – Related to accuracy is the boost in compliance. These software solutions tend to follow the latest compliance laws and regulations, making it easier for you to stay on top of intricate details and changes to the labour laws.
  • Integration – Payroll software can be linked to other solutions, such as employee calendars. You could even integrate payroll with employee reporting systems which could lead to higher levels of data. This can be used to improve employee productivity and wellbeing.
  • Transparency – Software can improve transparency because most payroll software allows employees to directly view and manage their personal information. This can ensure the process of calculating salaries is transparent and this, in turn, can boost employee happiness and trust.

Payroll software has the overall ability to save a lot of time and money with improved efficiency. You can turn the process of payroll processing into a fast and transparent system.

How to choose payroll software?

But like with any technology, payroll software needs to be selected with care. Just adding payroll software solutions to your business is not going to guarantee the above benefits. There are differences in available software. A solution that works for a multibillion company might not be quite as useful for a small business, and vice versa.

When you are looking for payroll software, you have to keep the following steps in mind. You should approach choosing software by first defining what you need from the software. Start by thinking about the different functions you want the software to perform. Your needs are unique and it’s important to understand them before you start looking. You should then go around and compare different payroll software to see which ones meet your unique needs.

Focus on things such as:

  • Ease of use. Depending on your business’ IT capabilities, you don’t want the software to create a lot of user problems. Opt for systems that are comprehensive but intuitive with an easy workflow. You also want to pay attention to the level of customer service you’d be getting. The more support available, the easier the software could be to use.
  • Scalability. If you’re a small business, you want to pay extra attention to the scalability of the software. Your payroll needs might look very different right now to what they might be in five years, as your business grows.
  • Integration. As mentioned, payroll processing systems can integrate with other software. Look into this if you want them to integrate with any specific systems you are already using.
  • Security and compliance. Pay attention to security features. You want the software to use the latest encryption and be compliant with local payroll laws. For example, local payroll software in Dubai can guarantee you don’t have to worry about compliance the same way you might with software developed to another market altogether.

You also have to choose your payroll software either as a cloud-based software or an on-premise system. In 2021, the cloud is the king. Cloud-based payroll management systems provide you with the ability to access data at any time and from anywhere. They can make management easier, especially in the current year – consider, for example, how many had to start working from home during the pandemic. The advantage of the cloud also comes in the form of scalability. Scaling a cloud system is a lot easier than having to start upgrading an on-premise system. Furthermore, the security of a cloud-based payroll is that you don’t need to physically worry about it. With on-premise software, you still have to make sure your business has adequate physical security against things like fire, theft and so on.

Payroll in 2021: a must-have for SMEs

The bottom line is that a good payroll processing system will make your life a lot easier. Every single business will have to deal with payroll. While the process is relatively similar for all, your business needs will still differ. That’s why it’s crucial to pay attention to the kind of software you adopt. You want to take time getting to know different payroll solutions in UAE and matching the right product with your varied and unique business needs. But with the right product, you can enjoy the benefits of payroll processing systems and make sure your employees are ready to take on the challenges ahead, growing your business on its way to success.

We’re ready to take your business to the next level. Find out more about payroll on Bayzat and discover new possibilities of work life for your team.