The Payroll Cycle is the sequence of tasks performed when processing payrolls. This includes paying employees for a specific period or on a particular date. This could be the monthly payment made for the current period’s salary or the hourly calculation along with Off-Cycle and Retroactive payroll software.
The typical payroll cycle is made up of five steps.
- Information Update
Before you run the payroll, you must update employee information like new-hire information or pay rate increases. In the case of a new hire, they must be enrolled in our system with their data such as salary, tax information, and Social Security Details.
- Calculation of work time
For payment purposes, the work time must be recorded according to the system used by the company.
- Calculation of Deduction
To calculate the gross-to-net salary for employees, all pretax deductions and benefits must be included in the payroll.
- Payment Processing Confirmation
In the case of an automated payroll management system, the administrator can view or print reports. Manual calculations should also be checked before sending out a salary or payment transfer.
Other payroll-related issues must be addressed by the administrator, such as depositing withheld taxes after employees receive their paychecks. The journal entries must also be created.
Types of Payroll Cycle
Payroll Cycles are divided into 4 types. These are based on when and for what period.
- The Standard Payroll Cycle
The regular payroll calculates the salaries or wages. It’s for the current pay period that is paid on a particular day. Adjust it to take into account tax deductions based on the business’s taxable income and any applicable state and national taxes. Before running the normal payroll cycle, adjusting for other deductions such as pretax benefits or contributions is necessary.
Normal payroll is, for example, an employee’s salary that is paid every month after deductions and taxes are made.
- The Off-Cycle Payroll
One-time bonuses and other payments are not part of the regular payroll cycle. Off-cycle payroll takes place between the date of regular payroll payments and the release of the Payroll Control Record. This can be used to reimburse employees who have missed regular payroll runs or for any other payments such as overtime late paid.
You will need to perform an off-cycle payroll run, and then you will also need to do an off-cycle transfer to your bank.
- Retroactive Payroll
The retroactive payroll is an adjustment of payments made for past payroll periods to a specific point in time. This refers to income due to an employee from a prior pay period. It can happen for many reasons, such as incorrect salary compensation, wages for hours worked, or a pay rise.
It can be used to adjust employees’ earnings, deductions, and costs based on changes in pay rates, benefit elections, or cost account changes. It can be reported on both regular and supplemental payroll management software details regarding earnings and deductions for the retroactive period.
Adjustments due to changes in cost distributions, late entry leave balances, or error corrections can often adversely affect accounting functions. This includes reporting on quarterly financial statements, grant reimbursements, and other periodic financial reports. The best way to reduce the retroactive Payroll adjustment is to do so before any financial reporting.
- The Final Payroll
A final payroll must be administered when an employee leaves the company. Your employee will receive the final payment as their last form of compensation. Other payments include any allowances agreed to by the employee and employer, reimbursements not yet refunded, and any outstanding bonuses or compensations.
All vacation accrued by the employee during their employment must be paid out. You also have to include vacation calculated on the severance payment.
Sometimes, a company might choose to pay employees for their two weeks notice but not require them to visit the workplace because of confidentiality or sensitivities. You must pay vacation pay for the two weeks you pay an employee, whether you pay them for their two weeks or terminate them.
Employers must give employees a “reasonable period,” which is a time limit set by the state to pay a final check.