A Complete Guide To Payroll Management System

Payroll management is a fundamental aspect of the HR department’s responsibilities. Throughout the process, it is absolutely essential to guarantee data security and comply with regulations related to the calculation and payment of social security contributions, overtime, and wages in kind, if applicable.

Apart from the legal aspect, HR departments have to invest dozens of hours each month managing payroll, regardless of whether the company has a few hundred or a few thousand employees. Therefore, a proper payroll management system is important to avoid errors that negatively impact the relationship between the company and its employees. Even a minor error in payroll calculation can lead to great disputes. 

In this blog, we will cover what this system is, what software is available to automate recurring monthly tasks, and how to ensure accuracy and compliance. Now, let’s continue with this complete guide to payroll management systems!

What is a Payroll Management System?

A payroll management system houses the official document that reflects both an employee’s salary and non-salary earnings, as well as the various deductions (contributions and withholdings). This document determines the net salary to be received on the payroll, a figure that must match the amount actually paid to the employee. 

The payroll specifies:

• The base salary and the different salary concepts (supplements, overtime, incentives, etc.). 
• Non-salary benefits, such as allowances or transportation allowances, are exempt from contributions. 
• Deductions applied, such as Social Security contributions and personal income tax. 

By meeting these requirements, the payroll supports transparency between the company and the employee and serves as proof in case of questions or complaints.

Why is Payroll Management Important?

The importance of proper payroll management is manifold, but here we mention the most important ones.

• Ensures clarity: Workers can verify how their income and contributions have been calculated. 
• Avoid penalties: the employer demonstrates compliance with its legal and tax obligations. 
• Facilitates accounting control: In the company’s internal management, the payroll serves as documentary evidence of salary items.

Methods of Payroll Management

All businesses—small, medium, and large—should manage payroll properly. Today’s companies use three basic methods:

Method 1. Internal payroll management

Payroll is a very complex activity. There are many calculations, deductions, compensations, and specific details to consider, such as

• Social security.
• Tax calculations.
• Payment of benefits, bonuses, and overtime.
• Withholdings.
• Working hours and time.
• Type of contract, etc. 

In this type of payroll management, the company has internal skills to process payments and all related activities. 

The payroll manager collects employee data from timesheets, calculates wages and taxes, deducts Social Security and other withholdings, and then enters the information into a payroll management system or salary calculation Excel sheet.

A dedicated payroll manager in large companies and a human resources manager in medium- to small companies manage the payroll process. Accounting for payrolls requires knowledge of accounting, as well as knowledge of the use of payroll software.

Method 2. Payroll outsourcing (subcontracting)

Thanks to payroll outsourcing, you can now say goodbye to headaches. 

With this method, you no longer have to worry about how to create a payroll; the entire workload of payroll management is transferred to an expert.

An accounting or human resources management consultancy will handle your payroll. It’s a simple solution, as you don’t have to do much of anything except submit the data every month with your employees’ attendance and absence information. This means you no longer need dedicated personnel for this activity. The provider takes care of everything. 

This solution seems like the answer to all your problems, but you must consider that you will lose autonomy regarding your employee data. Access to employee information is no longer possible, so you no longer have the ability to extract or modify it from the database… You have to trust the management of that consultancy completely! And if an employee is dissatisfied with their payment or wants a copy of their payroll, you must go through the outsourcing company. Additionally, the cost of the payroll outsourcing service is relatively higher than that of other methods and can change from one month to the next.

Method 3. Cloud-based payroll management software

Cloud-based payroll software systems allow users to interact with data simply by browsing the internet (there’s no need to install the software on the company’s computers or servers). An online payroll management system centralizes and generates your employees’ payrolls without errors and in just a few clicks.

You’ll be able to manage everything related to your payroll in a single tool. You can automate payroll generation, and monitor tax, payroll trends, advances, incentives, etc. Additionally, having payroll software enables you to access historical payroll data when needed. This is of immense use in the audit process or dispute resolution.

Most of the digital payroll management system providers also provide a dedicated employee self-service portal where they can download their payslips, upload their income tax documents, and see the loans, advances, deductions, and benefits on their mobile devices. This access to data benefits both employees and HR.

The Need for an Online Payroll Management System

As we’ve previously mentioned, payroll management software is now an essential tool for finance and human resources departments to optimally manage all processes related to employee payroll.

These departments increasingly need effective payroll solutions that allow them to improve speed and efficiency, as well as human capital management solutions that help them connect and collaborate with employees, sharing information and supporting company management in decision-making.

Payroll management software stands out for offering a series of features common to all of them:

• They provide essential support to senior management.
• They help retain talent in the company.
• The system reduce personnel management costs.
• They help improve the quality of communication and the work environment.

Functions of a Payroll Management System

Through the following payroll system features, companies can more efficiently and securely comply with their labor, tax, and social security obligations. For this, payroll software includes basic functionalities such as

1. Time tracking system

The time tracking functionality is essential for accurate payroll calculation based on the working hours of every employee. This time-tracking system collects working-hours-related data and then transfers it to the integrated payroll system. 

2. Absenteeism and leave management

Payroll software integrates leave management features and also allows you to centralize and automate the processing of vacation requests, notifications, and reasons for leave requests for each employee. This allows for effective monitoring of absenteeism and an attempt to reduce it. Of course, once you have the right information on absences, you can fulfill the month-end calculation accurately.

3. Payroll calculation

Salary calculation is the core process of an online payroll management system. This system has each employee’s information, salary structures, allowances, and total working hours to generate payroll and propose bank transfers for salaries.

4. Management with Social Security

Another important core functionality in payroll software must be compatibility and integration with Social Security regulations and requirements, taking into account the information needed to comply with EPF, ESIC, medical insurance, LWF funds, and other benefits in accordance with legal regulations.

6. Staff tax return

Thanks to the tax management functionality, payroll software includes tax tables to facilitate employees’ personal income tax settlement and filing processes. These tables are automatically updated according to changes in tax regulations.

7. Reports

Payroll software can generate user-configured reports. This way, organization leaders have access to critical metrics related to employee performance, payroll trends, and accounting department operations. This is always based on real-time data; therefore, it tells the current health of your company.

Benefits of Using Payroll Management Software

Payroll management system software can be hosted on local servers or in the cloud, thus ensuring information security and saving time and costs. These tools are therefore designed to ensure that any company’s payroll processes can be managed simply, securely, and accurately.

The use of this software offers us a wide range of advantages; let’s see below some of the most significant ones:

• Automation and ease of salary calculation and allowing for customized payment methods based on hours worked, whether the payment is daily or monthly, hours worked by workers with irregular hours, etc.
• They help quickly and efficiently manage salary conditions based on the salary structure established for each employee. This automatically generates the exact net pay based on the information we provide.
• They offer connectivity to other tools (for example, attendance management and performance monitoring), so it’s easy and convenient to export files and reports and use them to generate detailed spreadsheets.
• The system helps significantly reduce potential human errors, as data that previously had to be calculated by hand is now automated.
• They protect employee data in order to comply with data protection laws.

We can conclude that an online payroll management system is a useful tool for any company, regardless of its size or activity, as it allows for automating salary calculations, deductions, contributions, and taxations. As a result, the software saves time and money and increases business efficiency.

Factors to Consider When Selecting a Payroll System

Among the main factors to consider when selecting the most appropriate payroll software for a company, we highlight the following:

1. The basic functionalities

The payroll management system must have basic functionalities that allow the company to comply with all its legal obligations in the labor and tax areas.

We think it is important to select software that not only streamlines certain internal processes that are considered important but also allows the organization to automate and simplify tasks that must be executed accurately and on time to comply with all labor, tax, and social security requirements.

2. Vendor’s reputation

It is necessary to verify that the supplier’s characteristics fit or match the company’s requirements. It is very useful to know their experience and reputation in the sector.

Look if their software solution is built to comply with multiple labor laws and supports multi-currency disbursements or not.

3. Flexibility and scalability

Typically, most of the providers provide customization of the software to better support your company’s unique payroll requirements. Look for the price of the customizability and scalability, as it will directly affect your budget for the software.

Also, look for software that has automatic updating of changing tax and labor laws or has software upgrades from time to time to keep the system out of cyber threats.

4. Safety considerations

Payroll management software contains a database containing confidential and personal information about the company’s employees, as well as sensitive information about the organization itself (financial data, bank account numbers, etc.).

Therefore, it’s essential that payroll management systems include an efficient security system to prevent data leakage and the loss of critical payroll records. For example, it should use data encryption protocols, automatically create backups, and comply with the General Data Protection Regulation.

5. Support

It’s always important for a vendor to offer solid support that backs the organization both in its implementation process and in the regular use of the software.

In this regard, it’s vital to know whether the company has a support team to provide advice and resolve any questions or issues that arise during system implementation, in accordance with our expectations.

Future Trends of Payroll Management Systems

The societal and business upheavals of the last several years have rapidly advanced the need for change in the way organizations pay their employees. In order to be ready for that change, businesses should focus on the “superpowers” from AI and automation to cloud-based solutions that are shaping a modern payroll management system.

This section will identify the drivers of rapid change in payroll and payroll software so that you are well-informed when choosing your future payroll management software.

Trend 1: AI Integrated Payroll Systems

The payroll system powered with AI is getting more traction from businesses as it not only does the taught tasks but also provides insights into the payroll health of the company. With AI, payroll managers can analyze data more effectively and identify internal payroll trends to optimize payroll processes.

Trend 2: Cloud-Based Payroll Management Systems

Another trend that is gaining momentum in payroll management is the shift toward cloud-based solutions. Cloud-based payroll software just requires the internet and a computer to be functional. Of course, this remote connectivity offers greater flexibility, scalability, and accessibility compared to traditional on-premise solutions. It also lets employees see their payroll information from anywhere, at any time. This makes the payroll process convenient for both employees and employers.

Trend 3: Integration of Biometric Technologies

Finger, face, and eye scanners to punch in or punch out are called biometric technologies. These scanners are integrated with the payroll system to make daily working hours calculations automated and error-free. This integrated system is much more efficient than manual registers or Excel spreadsheets, and they leave chances for buddy punching and data inaccuracies. So biometric technology, when integrated with payroll systems, improves accuracy in verifying employees’ identities, prevents payroll fraud, and ensures that employees are accurately compensated for their work.

Trend 4: Mobile Payroll Applications

The rise of hybrid or remote work settings is making mobile payroll applications more popular. These apps allow employees to access their payroll information, upload income tax documents, check their payslips, and even request time off directly from their mobile phones. This is particularly helpful for field employees who are constantly on client visits. Mobile payroll apps include features for punching in or out with their selfies that give employees and employers peace of mind that the payroll calculation will be fair every time.

Trend 5: Data Security-Focused Payroll Systems

Last but not least. Data security in every digital product is becoming necessary as privacy regulations are becoming stricter than ever. So, payroll software providers are implementing robust security measures such as encryption, multi-factor authentication, and compliance with stringent data protection regulations to mitigate the risk of data breaches.

NYGGS Payroll Management System: The Right Choice

Are you in search of a reliable payroll management software that matches the above-mentioned futuristic capabilities? Look no further than NYGGS Payroll Software! With NYGGS, you generate your employees’ payrolls in a simple click and find the ones you’re looking for by selecting the date filters.

Mentioning some of the capabilities of the NYGGS payroll system:

• Calculation of monthly payrolls, FnF payments, extra payments, and special processes.
• Automatic calculation of personal income tax withholding, both for newly hired personnel.
• Loan and salary advances monitoring, annual absenteeism tracking, and payroll history.
• One-time payroll structure setup to automate net-pay calculation for each employee.
• Access to updated payroll policies and legal changes documents.
• Labor cost analysis.
• Multiple employee salary setups.
• Weekly, monthly, and annual calendar for part-time hourly contracts.
• Different cost reports by period for analysis.
• Encrypted email delivery of payslips, contracts, and any other payroll-related documentation.
• Integration with other HR modules.
• Employee portal and mobile app (iOS and Android).

Knowing these capabilities, you can guess that NYGGS’s payroll management system automates the entire process, from calculation and preliminary payroll creation to sending it to employees.

In addition, the platform itself provides access for all employees. This means that if any errors occur, they can request a correction with a single click. There is a file section for each employee from which payrolls can be downloaded.

Don’t wait any longer to modernize the payroll process of your company. Contact NYGGS to get a personalized demo today!

Frequently Asked Questions