As a business owner with employees, payroll processing is a daunting task. After all, you know your business but little about payroll processing. The last thing your business can afford is to be fined for late payments or incorrect payroll calculations. You might wonder if there is a checklist to use when processing your payroll to avoid errors and delays.
Payroll processing involves six basic steps: from confirming employee details to the payment of amounts deducted. Each of these steps can be further broken down into smaller tasks, which, if completed, will limit the risk of errors and delays in payroll processing.
Suppose you need to learn how to go about payroll processing and are worried that you might make mistakes. In that case, several payroll specialists can take over your payroll processing. However, not all businesses can afford to appoint an external payroll specialist. For those business owners who would like to run their own payroll, following a few basic steps will help.
Payroll Processing: What to do to Avoid Errors & Delays

The business owner should decide whether to use payroll software or a manual payroll system. Although the latter would save costs, good payroll software would decrease the risk of errors.
Once the payroll system is in place and all legal requirements are met, processing your payroll, whether manual or software-based, would involve six steps.
1. Confirm the Accuracy of Employee Information
Before you start actively processing the payroll, it is crucial to confirm the correctness of employee information. This is essential to ensure that you avoid errors and that payroll processing can be completed timeously.
There are several things to consider in this step.
If there are newly appointed employees, they need to be added to the payroll. Except for the basic information, like name, surname, address, and social security number, a few things need to be checked for a new employee.
Employees leaving the employer's service must be terminated on the payroll system. Removing employees on time is essential to ensure they receive what they have earned. There may be additional payments or deductions that must be made with their last wage as well, which needs to be taken into account during processing.
Verifying employee information for all current employees is also essential, as their personal information might have changed. Some employees may have been promoted, or their salaries or wages have increased. New garnishments against employees' wages must also be captured on the payroll.
2. Calculate the Gross Pay of Employees

Several factors must be considered when calculating the employees' gross pay or earnings before deductions.
3. Calculate the Total Deductions for all Employees
Before wages can be paid out, the employer must deduct certain deductions or withholdings from the gross earnings. Some of these deductions are statutory, while others are voluntary.
4. Calculate the Net Earnings and Review for Correctness
Net Earnings are also sometimes referred to as take-home pay. It is the amount that would be paid over to the employee. This is calculated by deducting the total deductions from the gross earnings.
Once the Net Earnings have been calculated, the employer should review the payroll once more to ensure that all the amounts and calculations are correct. Having a second person look at these figures is advisable, as the person who did the calculations in the first place regularly misses mistakes. One should, however, remember that payroll information is confidential and cannot be given to anyone.
5. Pay the Net Earnings to the Employees
After checking the payroll and verifying its correctness, the employer may pay the net earnings to the employees. Many businesses give their employees a choice of the method they would like to receive their pay.
6. Pay all Deductions to the Relevant Third Parties
The last step in the payroll process is to pay the amounts deducted for taxes, retirement funding, medical insurance, and garnishments to the relevant third parties. Each of these recipients would have a specific due date by which the payment of withholdings must be made. It is vital to ensure that these payments are made on time, as the business could incur penalties and interest on late payments.
Final Thoughts
There are six basic steps to the processing of any payroll. This includes confirming employee information, calculating gross earnings, deductions, and net earnings, and paying the employees and third parties for whom deductions were made. If these steps are followed correctly, it would significantly decrease the risk of payroll errors and delays.
Considering a "PEO" for the Human Resources and payroll needs of your business? Read this article: Is a Professional Employer Organization (PEO) Right For Your Small Business?