Payroll Basics: Choosing a Payroll Cycle

• Determine the benefits of outsourcing payroll processing.
• Identify the factors that can help you choose the ideal payroll cycle for your company.
• Learn more about a company that can provide outsourcing payroll processing services.

The payroll cycle that many companies follow is weekly, twice a month, or monthly. In the Philippines, the most common payroll cycle is twice a month, usually on the 15^th and at the end of the month. Other companies release salaries on different dates but still follow the twice a month payroll cycle. You’ll have to consider certain factors before you implement a payroll cycle, these include the following.

Factors in Choosing a Payroll Cycle

Required by Law

The governments of countries establish legal policies regarding the payroll cycle of companies’ employees. Employers must follow the regulations of their governments to avoid penalties and legal problems.

Your Company Cash Flow

You need to maintain a positive cash flow so that you’ll have more than enough resources to release the salaries of your employees within the pay cycle you established. Delays can lead to discontent and low morale. Assess your company’s cash flow to determine whether you can pay salaries on time or not.

Standards in Your Industry

Some companies follow the payroll cycles of their competitors in the same industry. Depending on the nature of the job and industry, pay cycles can occur weekly or bi-monthly. Some employees would rather work in a company with shorter pay cycles. The cycle you choose should factor in employee workload and your cash flow.

Workload of Your Employees

Your in-house accounting team might take on more work than they could if you used a short pay cycle. They might have to process the salaries of all your employees while doing other accounting tasks. This is when you might want to consider outsourcing payroll processing. An outsourced service provider can process your payroll while your in-house employees do other important tasks you delegate to them. This allows you to spread the work and make sure your payroll is correct.

Consider the above-mentioned factors before deciding on a pay cycle. The way you manage these factors can cause a delay in the release of your employees’ salaries. Balancing the mentioned factors allows you to maintain a positive cash flow and meet the needs of your employees.

Different Employee Salary Payment Methods

The most common payment methods are cash, direct deposit, and check. However, companies use cash and check payments less frequently and opt for direct deposits instead. In the Philippines, most companies provide their employees with their own card specifically for receiving salaries. This is where they bank transfer the salaries for every payroll cycle. This payment is also a secure option as it reduces the risk of losing a check or cash. Some companies might offer stock options as an additional form of payment or as an incentive. Large and well-known enterprises are likely to provide this option. However, this is a risky option because stock value can change over time. It can rise or decline, which has either a positive or negative effect on its value.

Processing Your Payroll

Once you establish a pay cycle and select a payment method, you’ll need to process the payroll of your employees. Pre-payroll activities include:

1. Register new hires with the local tax bureau to comply with taxes. You will also need to register with the social security, health care insurance and home development fund offices.  
2. Integrate a payroll system using a digital platform your team can access, or you can consider outsourcing payroll processing.
3. Collect data for processing such as gross and net pay, benefits, vacation leaves, sick days, withholding tax, number of work hours, employee financial information, and others.
4. You need to validate the data you collected to make sure the information you process for payroll is precise.

After going through your pre-payroll activities, you’ll proceed to the actual processing of your company’s payroll.

1. Compute the gross pay of your employees including their hours worked, vacation days, overtime, and other compensation elements that can affect their pay.
2. After getting the gross pay, compute the tax and deductions such as contributions to social security and healthcare benefits.
3. Compute the net salary after deductions.
4. Make sure the computations are accurate before releasing the salaries of your employees.

Payroll processing requires attention to detail and a meticulous approach so that you can avoid mistakes. This checklist can guide you through the process:

1. Identify and implement a payroll schedule and policy that your company follows.

2. Always verify employee details such as tax, salary, deductions, contributions, and personal information.

3. Assess possible changes to payroll when you hire new employees or when current ones get a raise and/or promotion.

4. Local or national government authorities might update or change payroll policies, apply these to your process to avoid penalties and/or fines.

5. Keep your records updated.

6. Compute gross and net pay before releasing it to your employees. Reconcile payroll so that it is always accurate and updated.

7. Collect employees’ number of hours worked in a timely manner so that you can compute their salaries accurately.

8. Consider investing in payroll software to automate some of your tasks and eliminate errors.

You have the option to do payroll manually, automate some of the tasks, or outsourcing payroll processing.

Outsourcing Payroll Processing

Outsourcing is a strategy that many companies use because of the benefits it offers and the competitive advantage they gain. Outsourcing payroll processing is an option for you. Work only with a company that has years of experience in the finance and accounting industry. Manila Bookkeepers can be the reliable and experienced business partner you are looking for. Our team can process your payroll for you. We make sure employee information, deductibles, taxes, contributions, and benefits are accounted for when we do payroll processing. We can compute the gross and net pay before you release the salaries of your employees. We ensure that you comply with local laws and regulations so that you don’t incur penalties and fines.Other than payroll services, we can do different accounting and bookkeeping services for you. Reach out to us at [email protected] so that we can customize a package for you.