Payroll – the process of calculating and distributing employee compensation according to an established pay cycle – is a vital component of HR operations. For an individual or a team managing this process, payroll involves tracking working hours or other defined time periods during which compensation is calculated, determining gross pay (see the definition later in the article), applying benefits and deductions, and arriving at the final (net) pay that is transferred to employees within the timeframe specified in their employment agreements.

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Understanding payroll is crucial because it ensures employees are compensated accurately and on time while keeping the company compliant with tax regulations and labor laws. Proper payroll management supports employee satisfaction, financial stability, and a company’s overall reputation.

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Let’s navigate payroll in this edition of The HR Glossary, our blog series where we explain the most popular HR terminology professionally and with ease. Make sure to also check Onboarding, Termination, and Time Off.

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To begin with:

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What is payroll processing, and what steps does it involve?

‍Payroll processing is the sequence of actions required to calculate and distribute employee wages accurately, compliantly, and on time. As we’ve mentioned above, this process involves the following steps:

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• Gathering employee data. This happens at the end of each payroll cycle, which can be weekly, bi-weekly, semi-monthly (often on the 15th and last day of the month), or monthly. The data collection process includes reviewing timesheets, attendance records, overtime, PTO, bonuses, and tax deductions.
• Calculating gross pay – total earnings of a given employee before deductions according to their salary rates, hours worked, and any applicable bonuses.
• Subtracting mandatory deductions such as income tax and contributions to health insurance, social security, and retirement plans.
• Arriving at the net pay – the final amount the employee will receive after all deductions.
• Distributing the net pay via a direct deposit onto the employee’s bank account, a paycheck, or a cash payment. Apart from the compensation itself, the employee typically receives a printed and/or digital payslip – a document that details gross pay, deductions, and net pay.
• Keeping payroll records and reports, including records for internal use and corporate tax filings to the local authorities.

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What is payroll compliance, and what are the consequences of non-compliance in payroll processing?

Payroll compliance refers to the adherence to all legal and regulatory requirements related to employee compensation, taxation, and reporting. It ensures that companies correctly calculate wages, withhold the necessary taxes, pay statutory benefits, and submit required documentation to government authorities. Compliance requirements vary by country and region but generally include income tax withholding, social security contributions, minimum wage laws, overtime regulations, and timely payroll reporting. Proper payroll compliance helps companies avoid legal penalties, maintain employee trust, and keep their finances transparent.

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Failing to comply with payroll regulations can lead to serious legal, financial, and reputational consequences. Financial penalties are among the most immediate risks, as tax authorities impose fines for miscalculations, late tax filings, or incorrect employee classifications. In more drastic cases, companies may face legal actions or audits, which can result in further penalties, back payments, or even lawsuits from employees if wages are not paid correctly. Beyond financial risks, employee dissatisfaction can increase due to incorrect or delayed payments, leading to higher turnover and decreased workplace morale. Repeated compliance violations can also damage a company’s reputation, making it harder to attract and retain top talent.

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To maintain payroll compliance, companies should establish clear payroll policies, stay updated on labor laws and tax regulations, and use reliable payroll software to automate calculations and reporting. Regular internal audits also help to identify and remove potential discrepancies early. In most companies, HR and accounting teams (or finance departments) work together to manage payroll compliance. However, challenges may arise due to frequent legal updates, complex tax structures, and the risk of human error in manual processing. Thes challenges become even more pronounced when managing global payroll.

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What is global payroll?

‍Global payroll is the process of managing employee compensation across multiple countries. It involves handling different currencies, tax structures, and benefits systems, making it more complex than domestic payroll. This process follows the same steps as we’ve listed before, with additional factors such as compliance with tax laws and labor regulations across multiple locations and varying reporting requirements taken into account. Companies with an international workforce must stay up to date with employment laws, payroll cycles, and statutory deductions in all countries of their presence. This often requires specialized payroll providers or software to ensure accuracy, compliance, and a seamless payment experience for employees, regardless of their location.

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What is payroll outsourcing? What services does it typically include?

Payroll outsourcing is the practice of using a third-party provider to manage payroll on behalf of a company. Typical services include salary processing, tax filing, benefits administration, compliance management, and payroll reporting. Providers use specialized payroll software—often included in their services—eliminating the need for companies to invest in and maintain their own payroll systems. Here are the most significant benefits of payroll outsourcing:

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• It saves time and in-house resources. Payroll outsourcing reduces the administrative workload for internal HR and finance teams.
• It is cost-effective. Outsourcing helps companies reduce or avoid expenses related to payroll software, staffing, and training.
• It guarantees compliance. Third-party experts in payroll management are specifically trained in tax and labor legislation in a company’s chosen location(s).
• It reduces the risk of errors and inaccuracies. Having an external team focused on payroll-related tasks helps minimize miscalculations and payment delays.
• It makes business scaling easier. For a company that is gaining momentum, workforce growth and international expansion can challenge the expertise of the in-house team responsible for payroll management. Getting external help helps ease or completely remove this burden.

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How can Acvian help?

Are you representing an international business in need of an outsourced payroll solution? Our team can take over all stages of payroll processing on your behalf, ensuring local compliance and timely submission of tax-related and statutory reports. As your team grows, we seamlessly integrate new hires into the payroll and benefits system and manage their data throughout the employee lifecycle. To get started, contact us via submitting your request or scheduling an immediate meeting.