a list of employees that details the amount that they are paid, their benefits, and applicable taxes. Payroll can refer to the total amount of money that a company spends paying its employees, or payroll can describe the process of issuing payments to employees.
There are multiple definitions of payroll. Fortunately, you'll be able to tell how the term is being used through its context. For example:
- You're assigned to write a report on a small business with a payroll of less than $100,000 per year;
- You receive an e-mail that Human Resources is busy this afternoon because they are updating the payroll;
- Your co-worker tells you, "Don't bother Tim in Finance on Tuesday mornings. He's doing payroll, and I want to be paid on time."
When you start a new job, you'll fill out a W-4, also known as an Employee's Withholding Certificate. The information you provide on the W-4 determines how much income tax will be deducted from your paycheck. You'll need to update your W-4 at important milestones, such as getting married, divorced, having a baby, and so on. These life events affect the amount of income tax that you need to pay. It's a good idea to review your pay stubs and address any payroll-related issues with your employer, don't delay doing this as you may be missing pay or have been paid too much.
Real-World Example of Payroll
Payroll errors can range from inconvenient to catastrophic for both employees and employers. In an article published in the Australian Business Review, Krishan Sharma outlines the disastrous implementation of a new payroll system at Queensland Health that lead to 35,000 errors and ultimately cost taxpayers AUD 1.25 billion or $850 million.
In late 2007, IBM received the contract to create and roll out a new payroll software for Queensland Health by July 2008. This was not enough time for IBM to fully understand Queensland Heath's business needs, let alone create software that could process more than 24,000 different pay combinations for 80,000 employees
The new payroll software was finally implemented in March 2010, almost two years late, and had not been tested. The original contract stated that IBM would be paid $6.19 million, but costs had already exceeded $100 million. Also, it cost $400 million to operate the system over three years.
Significance of Payroll
It is in your best interest to keep track of your payroll by checking your paystubs each payday. If you find an issue, you should immediately contact your payroll department to remedy the situation.
Payroll includes information on benefits, such as health insurance or retirement savings. If you make any changes to your benefits, such as decreasing the amount you contribute to a 401K or increase your health insurance premiums, verify that payroll updates your information to avoid any issues. If your employment contract states that you'll receive additional vacation time or other benefits after you've worked at the company for a certain period or you get a pay raise, check your pay stub to ensure that the payroll is accurate.