Virtual TimeClock Support Blog

Understanding the Payroll Process

July 22, 2010

There are several different systems involved with processing employee payroll, and each one serves a critical function. You've got the employee time tracking system which gathers employee hours. You've got the payroll system which generates the checks. And you've got the business accounting system for recording the payroll entries in your general ledger.

It's easy to get confused about the role of these payroll processing systems and how they're interrelated. Hopefully, this brief description will clear up any confusion.

Time Clock Software
Your employee time tracking system may consist of time cards and a punch clock, hand written paper timesheets, or time clock software. Employee time clock software takes much of the effort out of time and attendance tracking by providing accurate and impartial recording of all time worked, which keeps employees accountable for actual time on the clock. It saves you countless hours by automatically applying overtime rules and performing all of the time card calculations for you. Think of employee time clock software as providing the first step in payroll processing by instantly gathering and totaling all hours worked during the payroll period. Employee hours can then be reported to your payroll provider, manually entered into a payroll system, or exported to a file for easy import into your online payroll service.

Payroll Software
The next step in processing payroll is to generate employee checks. Your payroll solution will make all the necessary calculations for gross pay based on the hours provided by your time clock software, as well as all of the deductions for federal and state income tax withholding, FICA, and any voluntary deductions for insurance premiums or retirement plans. You may print employee paychecks in-house with your own payroll software, fax or phone in employee hours to your payroll service or accountant, or submit employee hours using an online payroll service that pays employees through direct deposit. Your payroll service may also file all state and federal quarterly and annual payroll taxes on your behalf.

Accounting Software
The final step in payroll processing is to get the payroll entries into your general ledger. This can be accomplished by either manual entry of the data based on the payroll reports received from your provider, or automatic posting of the payroll entries by exporting the payroll data from your online payroll service into your accounting software.

Each system is interrelated but has a distinct role and function within the payroll process, but there could be some overlap. For example, your accounting software may also be able to generate employee paychecks through an add-on payroll module or service. I hope this helps explain the progression from time clock to pay check.

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