Oct 16, 2023

How To Create a Payroll Policy

Your written payroll policy should define the nuances of your payroll function — wage definition, payment calculation, workweek and overtime computations, and more. Read through for some insights into how to organize the payroll policy at your company.

A payroll policy explains the process of payment — salary administration, timesheet keeping, wage methods and payment schedules — making employees conscious of what to anticipate on payday.

Your payroll management system, which details your obligations as an employer, should be such that it avoids costly noncompliance by detailing the payment of the right taxes for each employee and processing claims for expense reimbursements. Your payroll policy must also keep up with local, state and federal employment tax and wage laws. Your payroll system defines the responsibilities and accountabilities of all payroll staff and managers, including access and security levels.

Operations should be certified in detail, covering everything from employee hiring to separation. Procedures should cover payment processing —managing new contracts, time reporting, work changes, outstanding payments, data updates and deductions. Does your company use a payment processing service? You must still be on top of legislative requirements that determine the employment status of workers and need to be complied with.

Your payroll policy ensures that salary processing is executed accurately, consistently and transparently. With standard procedures, compliance and oversight, devise a policy that keeps an eye on government guidelines while adhering to your company's rules and regulations.

Know the key aspects

Keep the following in mind as you create a payroll policy:

• Document your payroll policy with approvals and signoffs built in — writing payroll procedures shortens the learning curve when you hire someone or a company to take over payroll responsibilities.
• Describe how employees document and submit timecards using any timekeeping system that works for your firm.
• Document how often payroll checks are cut or how to submit payroll information or records to a payroll service so it can print the checks. How are employee wages calculated? How are payment adjustments made? What procedures are needed to deduct a workday wage if an error was made? Write down all the steps involved.
• Communicate the payroll policy to employees and all internal stakeholders.
• Maintain the records, such as W-2s, timecards and tax statements, for at least three years. Describe where the records are stored, filed and saved — electronically or on hard copy.
• Define access and safety levels, differentiating various employee groups.

Once the first draft is written, ask an employee to follow the instructions to see whether the payroll is processed correctly.

Ask for feedback on instructions that had problems or didn't seem to make sense.

Write the final steps, refining and adjusting procedures into a final format.

Sweat the details

A payroll policy should specify and manage the responsibilities and accountabilities of staff. Since payroll covers sensitive and confidential information, the policy should be certified in detail in your handbook of policies — employee hiring to separation, how you manage new employee contracts, work changes, outstanding payments, data updates and deductions.

You must comply with a wide range of state and federal rules, such as determining the status of workers as part of the process. That's why clarity in your payroll policy, aside from creating an efficient department, builds a cohesive team and reduces the chances for misunderstandings or conflicts by being transparent.

Ensure all your employees have access to your payroll policy, update it to remain in line with any changes and keep open lines of communication — especially how to process payroll manually in case of emergencies.

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