Plan Your Payroll Strategy With Precision
Employees are the backbone of your company. They plunge their time, skills, and experience into your business in return for compensation—and they deserve to receive it on time and error-free every pay cycle.
Pay forms an inextricable link between your employees’ work and home lives. The 2023 Getting Paid in America survey reveals that over 78% of people would find it somewhat or very difficult to meet their current financial obligations if their next paycheck was delayed for a week.
Our guide ensures this delay never occurs. With a sleek and seamless payroll operation, your employees will receive their compensation like clockwork, while your business will always comply with current legislation.
What is payroll?
Payroll is the process of managing and distributing an organization's compensation to its employees, which can include wages, salaries, bonuses, and benefits.
The payroll process also involves calculating and withholding payroll taxes from employee paychecks to ensure compliance with federal, state, and local regulations. By doing so, the National Payroll Week campaign reveals that payroll professionals contribute, collect, report, and deposit 70% of the U.S. Treasury’s annual revenue, worth approximately $2.4 trillion.
Payroll can be a complex and time-consuming task for businesses of all sizes, so it requires professionals experienced in handling it. Some will choose to qualify for a formal certification from the American Payroll Association, such as the Fundamental Payroll Certification or Certified Payroll Professional, to demonstrate their knowledge and commitment to continued learning in this field.
Why is payroll important to companies?
Every employee benefits when payroll runs like clockwork, positively impacting your entire organization. Here are the top gains you can expect:
Enhancing the employee experience
Payroll is one of the most important aspects of your employee experience. If your people don't receive accurate, timely pay every cycle, then every other element of your company culture becomes meaningless. Unfortunately, the Getting Paid in America survey reveals that more than 8% of the workforce has received their paycheck late, either regularly or occasionally. Companies can avoid this situation by adopting a people-centric approach to payroll, ensuring their systems scale to handle complexity and remain flexible for future changes.
Maintaining financial integrity
Payroll accuracies demonstrate that your company is in excellent financial health. The opposite is also true: late or incorrect payments lead people to the conclusion that your business is in trouble. Repeated incidents can cause irreparable damage to your brand and reputation, creating problems with attracting investors, retaining customers, and building stakeholder trust.
Reducing business costs
Payroll errors can be expensive for a business, encompassing the costs of correction, the labor required, and any noncompliance fines and penalties issued. A 2022 EY survey revealed that a single payroll error costs $291 to fix, each chipping away at the bottom line. But it’s harder to measure the lost productivity when employees don’t receive their wages on time. Engagement can take a nosedive when workers lose confidence in payroll, negatively impacting morale and output.
Achieving compliance
A slick payroll operation isn’t just for your employees; it’s also a business requirement. Federal and state compliance laws continue to evolve, and it's up to you to keep abreast of them to avoid penalties and lawsuits. For example, the Fair Labor Standards Act enforces strict guidelines for companies regarding minimum wage, overtime pay, recordkeeping requirements, and more.
How to manage payroll
A successful payroll strategy involves many moving parts. From calculating compensation correctly to understanding regulations, here’s everything you need to consider when managing payroll.
Payroll frequency options
First, decide how often to pay your employees by choosing a payroll cycle frequency that is cost-efficient, has a low administrative burden, and enables you to implement fair and consistent calculations. There are pros and cons to each of the following cycle options:
Weekly
Having 52 pay periods per year is attractive for hourly employees, enabling them to meet their financial obligations and never waiting long to receive pay for extra hours worked. However, weekly payroll is time-consuming and expensive for organizations to run.
Bi-weekly
26 pay periods per year means that payroll occurs every 14 days. This predictable model is convenient for both hourly and salaried employees, with overtime pay straightforward to manage. Payroll professionals find this cycle easier to handle than weekly, but while it’s cheaper to run than a weekly model, it’s still more expensive than less frequent cycles.
Semi-monthly or bi-monthly
Semi-monthly pay cycles occur 24 times per year, for example, on the 1st and 15th of the month. This cycle has a fairly low administrative burden, although calculating overtime can be tricky.
Monthly
In a monthly cycle, there are 12 monthly pay periods in the calendar year, which is common for salaried workers who rarely work overtime. The administrative burden is low for payroll teams, making this the lowest-cost payroll strategy for an organization.
State, multistate, global, and multinational payroll
Complexities arise when you extend payroll beyond the borders of a single state or even on a global or multinational scale. Understanding these variations ensures accurate, timely tax payments and compliance with varying regulations and tax laws.
State payroll
State compliance is an important starting point for payroll professionals. There are several regulations tied to payroll that aren’t federally legislated, or have additional legislation applied to them at state level. Some regulations worth knowing include:
- Withholding or reciprocity regulations: When an employee works in one city or state but lives in another, reciprocity agreements allow an employer to withhold taxes based on residency, not on work location.
- Overtime regulations: While most states follow the FLSA rules on overtime, some states, including California, Nevada, Colorado, and Alaska, have their own daily overtime regulations, while New York and Oregon operate industry-specific regulations.
- Paid leave: No federal law covers paid leave, but multiple states take their own approach to sick and family leave.
- Wage statements: The FLSA doesn’t require employers to provide payslips or wage statements, but some states have implemented highly specific regulations. For example, Kentucky and Utah must provide free payslip printing, Oregon requires an employee to opt in for electronic pay statements, and California requires an employee to opt out if they don’t want them.
Multistate payroll
If your organization moves or operates in more than one state, you’ll need to understand how payroll works across borders and any additional state regulations that apply. When designing your payroll strategy, the best practice is to meet the requirements of the most complex state to mitigate the risk of noncompliance.
Global payroll
Managing global payroll involves understanding various regulations and compliance requirements for the country in which you operate. This includes local taxes, Social Security contributions, and employee benefits.
Multinational payroll
Managing a multinational corporation means navigating varying regulations and compliance requirements for each country and state. The key is maintaining consistency in processes across all locations while maintaining compliance with local laws. This requires strong communication between departments and utilizing technology to streamline and automate processes.
UKG One View simplifies multi-country payroll by leveraging a network of secure payroll providers in 100+ countries for fast, accurate, and compliant pay in local currencies. You’ll have access to country-specific data and bank information to satisfy local requirements and view powerful analytics and payroll reports.
Maintaining payroll compliance
Adhering to the many laws and regulations that affect payroll requires collaboration between HR, IT, and Payroll. The following are just some of the types of legislation that these departments should understand:
- Fair Labor Standards Act (FLSA): Encompasses minimum wage, overtime pay, record-keeping, and child labor.
- Equal Pay Act (EPA): Prohibits sex-based wage discrimination for employees in the same establishment who have equal duties.
- Davis-Bacon Act: Ensures workers on federal or federally assisted construction projects are paid no less than the local prevailing wages and fringe benefits for similar work.
Payroll teams must take responsibility for staying informed about any updates or changes to related legislation by:
- Committing to regular training and professional development
- Joining professional membership organizations
- Subscribing to legal updates and newsletters
- Collaborating with legal teams
- Attending industry conferences
How to calculate payroll taxes
Payroll teams must correctly calculate and deduct certain types of taxes from employee pay and deposit them with relevant state or federal government agencies—these include local income, state and federal payroll taxes, Social Security & Medicare contributions, and unemployment tax. The IRS issues hefty penalties to organizations that deposit their payroll taxes late, with the rate linked to the number of days the deposit is past its due date. For example:
- 2% for deposits 1 to 5 days late
- 5% for deposits 6 to 15 days late
- 10% for deposits 15+ days late or within 10 days of the IRS's first notice
- 15% for deposits still unpaid 10+ days after the first notice or the day when the taxpayer received demand for payment
The following types of tax are applicable when calculating payroll:
Federal income taxes
The amount of federal tax that payroll must withhold from an employee's paycheck is based on factors such as the employee's taxable income level, filing status, and the information provided on their Form W-4. The employee fills out this Withholding Certificate at the beginning of employment and tells payroll how much federal income tax to withhold from the employee's pay.
State income taxes
42 states and Washington D.C. also require employees to pay state income tax, which has its own rules and regulations for withholding state income tax. The exceptions are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire will join this list in 2027.
Social Security and Medicare
Federal Insurance Contributions Act (FICA) is a federal payroll tax withheld from employees' paychecks to fund the Social Security and Medicare programs. The current rate for Social Security is 6.2%, while the rate for Medicare is 1.45%. Employers must match these contributions, making the total contribution rate 12.4% for Social Security and 2.9% for Medicare.
Employee benefits
Employee benefits, such as healthcare, retirement plans, and bonuses, are also subject to payroll taxes. These vary by state and local regulations, so staying informed about any updates or changes is essential.
Understanding tax brackets
While state income tax rates vary according to location, there are seven federal tax brackets for 2023, as follows.
- 10% tax rate: For single or married taxpayers filing separately and earning $0 to $11k, or up to $22k for married couples filing jointly. Head of household taxpayers also pay this rate if earning $0 to $15,700.
- 12% tax rate: For single or married taxpayers filing separately and earning $11,001 to $44,725, or between $22,001 and $89,450 for married couples filing jointly. Head of household taxpayers also pay this rate if earning between $15,701 and $59,850.
- 22% tax rate: For single or married taxpayers filing separately and earning between $44,726 and $95,375 or between $89,451 and $190,750 for married couples filing jointly. Head of household taxpayers also pay this rate if earning between $59,851 and $95,350.
- 24% tax rate: For single, head of household or married taxpayers filing separately and earning between $95,376 and $182,100 or between $190,751 and $364,200 for married couples filing jointly.
- 32% tax rate: For single, head of household or married taxpayers filing separately and earning between $182,101 and $231,250 or between $364,201 and $462,500 for married couples filing jointly.
- 35% tax rate: For single, head of household or married taxpayers filing separately and earning between $231,251 and $578,125 or between $462,501 and $693,750 for married couples filing jointly.
- 37% tax rate: For single and head of household taxpayers earning above $578,126, above $346,876 for married couples filing separately, and above $693,751 for married couples filing jointly.
Accurate tax calculations are critical in ensuring employees are paid correctly and avoiding penalties or fines. UKG Pro simplifies the process with a new Tax Liabilities panel, easily accessible in the Payment Services Gateway. To ensure payroll precision, the feature provides summaries for Total Tax Liabilities, including Tax Liability Exceptions, Total Collected, and Total Payments.
Essential tax forms
The following tax forms are necessary for payroll functions to report tax information correctly:
Form W-4: Payroll must distribute this form to employees to determine their filing status, number of dependents, and any additional income that may impact the amount of tax withheld from their paycheck.
Form 941: Employers must file this form quarterly with the IRS to report the income taxes, Social Security and Medicare tax that have been withheld from employees' paychecks.
Form W2: This wage and tax statement is provided by employers to employees and outlines wages earned, federal and state taxes withheld, and any contributions towards retirement or health care plans.
Form W3: Employers must file this form with the IRS and Social Security Administration, summarizing information from all employee's W-2 forms.
Form 945: Employers must file this form annually with the IRS to report federal income tax withheld from non-payroll payments such as pensions.
Important payroll dates
Payroll teams must stick to key deadlines to ensure timely tax filings. The below deadlines are based on a calendar year-end, so if your business has a different fiscal year, the required dates may vary. Additionally, some reporting and compliance requirements are based on factors such as the country, state, and type of business.
Here are some dates to plug into your payroll calendar as a starting point:
Quarterly form 941 filing deadlines
This form is due by the last day of the month following the previous quarter. For example:
- Q1: April 30th (January 1 - March 31)
- Q2: July 31st (April 1 - June 30)
- Q3: October 31st (July 1 - September 30)
- Q4: January 31 (October 1 - December 31)
Annual deadlines
The final day in January is a key deadline for the following:
- Form W-2 distribution
- Form 945 (Withheld Federal Income Tax)
- Form W-3 Form W-4
However, the end of the payroll year is also a vital time to review your payroll processes and make any necessary changes or updates. Include the following jobs on your to-do list:
- Send W-2s in advance of the January 31st deadline
- File year-end taxes and deposit any amounts you owe
- Audit your employee payment records
- Create a payroll plan for the following year
How to choose a payroll provider
Prioritizing an investment in payroll technology is a critical step toward accurate payroll management. Some companies take a "wait and see" approach, essentially getting by with manual paper checks or outdated systems. However, the cost of doing nothing in payroll is compliance problems, human error, and reputational loss.
Modern payroll technology brings a host of benefits to the table, but only if you choose a quality payroll vendor that delivers everything you need.
An overview of payroll services
Although the bells and whistles may differ, effective payroll solutions should typically include the following core features:
Payroll and Human Capital Management (HCM)
In enterprise companies, payroll often integrates with a suite of products that form human capital management (HCM) software. HCM is responsible for all aspects of the employee lifecycle, from onboarding to retirement or termination.
By investing in an HCM system with integrated payroll functionality, companies use a single database to streamline entire processes and reduce the chance of data errors. Storing all your employee information in one central system also allows for better data analysis and decision-making.
As an example, Infosync provides outsourced accounting, payroll, and reporting to some of the world’s biggest restaurant brands. Using UKG Pro to manage more than 170,000 people, Infosync’s clients can access key HR and payroll-related information from a central location, using a range of desktop and mobile devices.
Payroll and Workforce Management Integration
Workforce management technology includes time and attendance tracking, scheduling, and employee self-service. Integrating payroll with a workforce management solution drives efficiencies by automating processes and including features like tax jurisdiction lookup, intelligent shift swaps, proactive alerts, and more. These features aim to relieve any administrative burden and ensure accuracy.
Pay-on-demand offering
Earned wage access is a powerful feature that can help employees visualize their financial picture, cover unexpected expenses, or gain early access to their pay. UKG Wallet offers this and more by providing employees with a breadth of financial wellness tools, including education and free one-on-one counseling to support their financial journey.
Pay equity tracking
Pay equity is a diversity imperative for business leaders today, and in some states and countries, pay transparency is the law. Payroll plays a significant role in auditing pay information as companies collectively strive to close the gap and fight for equal pay. A solution that provides access to timely and accurate data ensures companies stay ahead of potential issues and implement fair pay practices.
Payroll Professional Services
When companies trust their operations to payroll specialists, they need confidence they're in safe hands. It's always easier to make the leap when a professional third party has vetted your potential payroll vendor. In NelsonHall's Vendor Evaluation & Assessment Tool (NEAT) report for payroll services vendors, UKG is named as a "leader" based on its "ability to deliver immediate benefit" and "ability to meet client future requirements." The report highlighted UKG's main strengths as:
- A strong heritage of innovation
- Consistent investment in research and development
- Next-generation payroll capabilities
- Additional valuable technologies like HR service delivery
What to consider when selecting a provider
Along with checking the core functionality of your payroll solution, also consider these questions:
Does the tool offer scalability?
As your business grows, moves into new markets, or goes through a merger and acquisition, your payroll software must be flexible and resilient enough to withstand any large-scale changes to your organizational structure.
For example, when H.I.S Co, Ltd acquired Red Label Vacations Inc. to form H.I.S.-Red Label Vacations Inc., combining the organizations was technically challenging as each had a separate HR system. To achieve the required scale and support, the merged company went live on UKG to create a seamless human capital and workforce management experience.
What integrations are available?
In a unified payroll system, multiple HCM tools are housed in a single solution which is efficient and convenient. If you're not using a unified model, you'll need to choose a solution that offers integration capabilities with third-party vendors.
For example, in an integrated setup, you may have separate systems for payroll, talent management, HR, and workforce management. While this can work, and it's possible to automate repetitive workflows across each of these systems, user experience can suffer compared to using an all-in-one solution.
Does it have the functionality to achieve compliance?
Your payroll software is only as good as the penalties you avoid. To meet regulations, your system must offer robust analytics and reporting features to deliver real-time data for compliance. It's also important to choose a vendor who is up-to-date on legislation in local markets and your specific industry. HR and payroll must join forces here to select a unified payroll system that neets regulations and protects your business reputation.
How to implement your payroll systems
Implementing your chosen payroll system can seem daunting, but with careful planning and execution, you’ll transform your payroll operations efficiently and effectively.
The stages of payroll implementation
The payroll implementation process can be divided into several key stages:
- Data migration and setup: Transfer all employee data, such as personal information and compensation details, into the new payroll system. This also involves setting up tax withholdings, benefit deductions, and other payroll-related information.
- Testing and validation: Before going live with the new system, test and validate all processes to ensure accurate calculations and compliance. Validation may include running parallel payrolls with both the old and new systems, comparing results, and addressing any discrepancies.
- Training: Your new payroll system should include an intuitive interface that’s easy for your team members to navigate. But it's also vital to go beyond the basics and deliver product-specific training to explain the new processes and features to your payroll team.
- Go-live and transition: The final step is to go live with the new payroll system, monitor its performance, and support your team as they adjust to it.
5 factors that could impact payroll implementation time
The longer your implementation, the longer it will take to experience the benefits of your new payroll system. As with any large-scale technology project, various factors can impact your timeline, including:
- Organization size: Larger organizations spread across multiple global locations will naturally have a more complex implementation process than smaller businesses based in a single state.
- Migration challenges: Data cleansing, validation, and mapping processes may take longer if the data is inconsistent or requires extensive manipulation.
- Integrations: Syncing your new payroll system with your HRIS or other financial systems may add time to implementation.
- Testing and quality assurance: Rigorous testing shouldn't include shortcuts. However, validating your data may take longer if there are any discrepancies.
- Vendor readiness and support: An underprepared or busy vendor could cause delays in your project timeline. Choose a vendor with a proven track record of successful implementations and excellent customer support, ensuring you can contact them easily if any issues arise.
5 best practices for a smooth implementation process
A set of strategic steps can mitigate any potential challenges and ensure you maximize the capabilities of your new system. Here are five best practices for a smooth implementation process:
- Engage key stakeholders: Include payroll, HR, IT, and compliance leaders in the planning process. This gives you time to address their requirements and concerns and builds buy-in and support for the new system.
- Audit your current payroll process: Conduct a thorough audit of your current payroll process to identify inefficiencies, potential risks, and areas for improvement. This will also pinpoint the features and capabilities you need in your new system.
- Establish a project timeline: Develop a detailed project timeline with clear milestones and deadlines to keep your team on track and proactively address any issues that arise
- Phase your implementation: Rolling out the new system in stages allows for better control, testing, and adjustments based on real-world feedback.
- Select the right vendor: Carefully evaluate and select a vendor with a proven track record of successful implementations. Consider the features and functionality they can offer, customer reviews, and case studies of companies like yours that have successfully revamped their payroll process with their system.
UKG: Industry-leading payroll solutions
Effective payroll management boils down to accuracy, compliance, and efficiency. At UKG, we understand the complexities of global payroll operations and are committed to helping our clients succeed with our unified HR and payroll solution. Our industry-leading technology and expert support ensures a smooth implementation process and ongoing success for your business. Here are two options to explore:
UKG Pro is an award-winning payroll solution suitable for mid to large enterprise companies. It can:
- Automatically process hundreds of payroll computations in US and Canadian dollars
- Stay up-to-date with the ever-evolving compliance landscape
- Deliver fair and accurate compensation with instant access to pay details from any device
- Support your employees’ financial wellness
- Play a crucial role in achieving pay equity
UKG Ready Time and Pay offers a simple, modern pay experience for small business owners. It can:
- Optimize limited resources
- Streamline time tracking with consistent, fair rules
- Deliver the perfect paycheck every time
Choose UKG for your payroll needs and experience the benefits of a trusted partner in your payroll journey.
