Understanding the 3 Key Stages of Payroll Processing Software

Understanding the 3 Key Stages of Payroll Processing Software
Reading Time: 5 mins
Published: January 30, 2023
Last Updated: July 15, 2024
  • What is payroll processing software?
  • Benefits of Payroll Processing Software

A firm’s payroll system is what holds it together. Every company must understand the role of payroll software and how to keep it running smoothly. It is a complex procedure that entails far more than the calculations of salary and compensation. If you don’t know how to do it, the procedure might be intimidating. Here’s our handy guide that will walk you through the complexity of payroll processing. 

If you are looking for top payroll software for your company, check out our buyers’ guide to find the best choice, or contact us for it!

What is payroll processing software?

Before getting to know how payroll processing works, let’s quickly understand what it is. Payroll is a critical business function that involves calculating employees’ “net pay” after applicable taxes and deductions are adjusted. The payroll administrator must organise the payroll process step by step for efficient payroll administration. 

Simplified Payroll: Uncovering Essential Steps

Companies usually have different inclusions and deductions while calculating payroll. However, some steps remain the same for every payroll process. Let’s discuss them in detail.  

The entire payroll processing is covered in the following three stages: 

  • Pre-payroll activities 
  • Payroll calculation  
  • Post-payroll process 

Pre-Payroll: Stage – 1 

In this stage, companies gather all the necessary information for payroll processing and customise the software accordingly. The steps involved are – 

  • Data Collection – it is the basic step for any processing. Business owners have to collect the employees’ data required for processing their payroll before anything else.  
  • Policy Formulation – as quoted above, payroll calculations might vary for every organisation. Companies define their calculations by setting up specific policies covering 
  1. Administrative salaries 
  2. Payroll deduction 
  3. Attendance and leave structures 
  4. Workweeks 
  5. Timekeeping, etc. 

Note that the policies should be well-described and have to abide by the regulatory norms for efficient payroll calculations. 

  • Input Gathering and Validation – here, you receive employee information that includes attendance and number of leaves, statutory earning and salary deductions, benefits, compensations, joining dates, etc., from respective departments of your company. You have to validate the received information for salary and compliance payments. 

Payroll Calculation: Stage – 2

Here is where the actual payroll calculation begins. Now that you have all the data required for payroll calculations, it’s time for you to feed your software with it. The payroll software uses this information and performs the necessary calculations. You can see the net pay for every employee based on the defined policies and verified data. 

Modern-day payroll suites let you integrate leave and attendance monitoring systems and employee self-service portals. Using these, you can track the following data related to every employee – 

  • Working hours 
  • Compute wages 
  • Calculate taxes and deductions 
  • Print pay slips, etc. 

Choosing such service providers to process payroll calculations for your company saves you from the cumbersome pre-payroll tasks, thereby letting you focus on other critical business issues.

Post-payroll: Stage – 3 

This is the final stage of your payroll processing. It involves the following steps –

Statutory Compliances – the payroll administrator must strictly comply with the legislative compliances when processing payroll. Various statutory deductions, including EPF, TDS, and ESI are a part of an employee’s payroll processing. These deductions are subsequently paid to the appropriate authorities/governments after the process. 

Salary Distribution – after completing all of these procedures, you can now credit the salaries through whatever medium your company follows. It is better to maintain salary accounts for every employee for hassle-free processing. Nowadays, good payroll software comes with several features to auto-credit the salaries, helping you save a lot of time and avoid manual errors. 

Reporting – at last comes the reporting part of the payroll processing. Reliable reporting includes information like employee costs by department or location. These reports are then forwarded to the company’s management team or finance department for additional review. 

An additional tip here is to maintain an accurate book of accounts. Try recording the information into the accounting or ERP system of your company.

Benefits of Payroll Processing Software

Payroll is a critical part of any business. However, performing the entire thing manually is a daunting task. The following are some underlying advantages of the best payroll processing software – 


Employees can use this software to submit timesheets without having to go through multiple people from the hierarchy and different departments. This saves time and reduces mistakes for everyone involved in the process. 

Employee Satisfaction 

By providing accurate and timely paychecks, payroll software gives employees more control over their schedules. Employees love the fact that you are interested in assisting them with their financial management! 

Reduced Errors 

Good payroll software reduces errors linked to manual data entry. It performs automatic calculations that remove human error from the equation. It also removes any errors made while copying/pasting numbers into other cells/sections of these spreadsheets and saves time spent on accounting. Employees can rather concentrate on boosting productivity levels. 

Wrapping it up! 

Payroll management software is one valuable resource for business owners. It provides all of the tools necessary to process payroll swiftly and efficiently. If you're in search of the ideal payroll software vendor for your business, reach out to us for a free consultation.

Decide with confidence.

You must conduct thorough research and read user reviews to choose the best software for your needs. So, take a look at our website to understand better!