Payroll is the process of paying employees. It can also refer to a list of paid employees or the total amount of money paid to those employees.
A payroll system is what a business uses to pay the correct amounts of money to the right people on the required dates. Payroll processing consists of these basic tasks:
- Working out pay (including benefits and reimbursements)
- Taking out taxes and any other deductions such as employee insurance, retirement contributions, or garnishments
- Making payments to employees
- Paying taxes (including any owed by the employer) to the tax authorities
- Keeping payroll records to show the government you’re doing all these things correctly
Payroll can be run by hand for very small businesses with one or two employees. However, it’s commonly done using payroll software, or outsourced to a bookkeeper, accountant or specialist payroll provider. Getting payroll correct is important for your employees, the tax authorities, and the efficient running of your business. Payroll can be one of the highest expenses for a small business.
Contractors are often paid differently to employees and may be subject to different requirements.
Payroll is what happens each payday and involves sending the right amounts of money to the employee, but also to a number of other locations.
See related terms
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.