Definition

• A payroll system is the medium through which the employer processes his payroll. There is no set system that employers must follow. It typically depends on the structure and needs of the organization. Within the system, a foundation must be established, such as a pay date and a payment method, such as direct deposit and/or live checks.
  
  

Manual

• A manual payroll system is done entirely by hand. The problems with a manual system are many. The room for error is high, because all payroll tasks are done manually. This includes calculating time sheets, wages, taxes, issuing checks, preparing W2s, verifying the payroll and recording payroll transactions. Tax errors can easily occur with this system, resulting in penalties from the government. A manual payroll system may be effective if you have only a few employees.
  
  

In-house Computerized

• An in-house computerized payroll system exists when the employer uses payroll software. Small businesses generally use accounting software with a payroll feature attached, such as Quickbooks. Large corporations use a more expensive and customized payroll system, such as Ultipro, which has an HR feature attached. In-house payroll staff are included in this system. The main problem is that it might be expensive for the employer. She has to pay salaries and benefits to the payroll staff, plus she must purchase and maintain the software. System glitches can cause the payroll staff to work overtime, resulting in overtime pay, plus tech support fees.
  
  

External

• An external payroll system occurs when the employer outsources his payroll to a payroll service provider. For a small fee, the provider relieves him of all payroll duties, including benefits administration (e.g., health and retirement). The provider is usually off-site; when problems with the payroll occur, the employer might not know it until payday. Furthermore, if the payroll provider has several clients, it might be difficult getting help immediately when payroll issues arise. Certain information, such as tax documents, might not be easily accessible if the employer uses a payroll provider. He has to request the information, which might take some time to arrive.
  
  

Solution

• It is likely that payroll problems will occur; the key is to minimize them. The employer should examine her business's needs before implementing the system. For instance, if she has a small business, but expects it to grow, her payroll system should provide that capability.