The term “payroll” actually refers to the list of employees that receive compensation from a company. However, most companies generally use the term to refer to the money that is paid to the employees or the records that detail how much each employee has made. Payroll may also refer to the company, department, or software that is used to process paychecks and taxes or to the process of calculating and distributing employee paychecks.

Processing payroll is a very important function of any business and necessitates an understanding of current regulations, detailed tax knowledge to ensure proper withholding and filing, and a highly organized system that can be relied upon to pay each employee the right amount of money. For many organizations, using payroll systems or outsourcing payroll can help to minimize stress & errors.

Payroll mistakes can happen faster than you think. For a moment, think about the employees for whom monthly salary is the only source of income. Imagine what if the salary is not paid accurately or there is a delay in releasing salary. Such irregularities can take a toll on the morale of the employees and ultimately affect the business productivity.

Importance of the Payroll :

Payroll is an integral part of all organisations. The payroll department is not only responsible for employees' salary compensation, but it also plays a vital role in protecting the company's reputation by ensuring compliance with various legislations.


Every small business owner performs more than one role for his company. One of the most important tasks in running a small business is completing payroll. Employees need to be able to rely on being paid on a consistent basis without delays. Payroll affects every aspect of a small business from the morale of employees to the financial stability of the company.

1. Morale

One of the most important aspects of payroll is its impact on the morale of employees. In a small business, employees tend to be more aware of the company's financial stability than in a larger business. If payroll is late, employees will start to question the financial integrity of the company. This will cause employees to start under-performing and to care less about their job if they feel it is not secure. Payroll should always be paid in a timely manner to keep employee morale high.

2. Compensation

Another important characteristic of payroll is that it allows an employee to feel his net worth within a small company. An employee's total compensation is built into payroll. This includes his salary, benefits and bonuses. Employees typically undergo annual performance evaluations by their supervisors and are rewarded with an increase in salary or a bonus or both. Benefits also reflect an employee's worth within a small business. Employees who receive health insurance, life insurance and pension benefits feel they have a higher worth.

3. Time Consuming Job

Payroll can be a time consuming job for a small business owner. This job needs to be performed consistently once or twice a month. In addition, the information needs to be correct so that employees are paid the right amount, the with-holdings are accurate, and state and federal tax deposits are made timely. To do this efficiently, a small business owner should consider outsourcing this job to free up his time.

Payroll is fundamental to all organizations and good payroll management is vital as it affects every aspect of an organization, from its reputation and perceived financial stability to the morale of its employees. The payroll department is not only responsible for paying the employee it also plays a vital role in protecting the company’s reputation by ensuring compliance with legislation. To see payroll as simply a processing function is a mistake and one that can lead to a failure to recognize the importance of good payroll and the enormous effect it has on a business.