Accounting terms

Dictionary of all accounting terms

What is Payroll?

Payroll is the total compensation  for a certain period of time or a specific date that a business has to pay to its employees.

Payroll is one of the most important aspects of a business as it is the means by which a business pays its employees. For medium-sized and larger businesses, payroll is managed by the accounting department. For many small businesses, the owner or equivalent normally handles payroll.

Payroll is one of the biggest expense for most businesses and it is always a deductible. The company's payroll can and usually does differ from one time period to another because of certain things such as sick pay, overtime, or other factors.

For medium and large-sized businesses, payroll services are outsourced to cut back on expenses and to streamline it. In this scheme, the employer will keep track of his employees' hours worked and then submit this to the payroll service.

When it comes time to pay the employees, the payroll service will determine the gross amount for each employee based on time worked multiplied by the pay rate. Taxes and other withholdings are then deducted.

Finally, the payroll service will either provide a paper check or do a direct deposit into the employee's bank account. The latter is the standard method of payment.

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