A good payroll system provides processes and a framework for paying employees fairly, accurately and on time. A payroll department, whether it is a separate department, a department within human resources, or a unit of a finance department, straddles the purview of both HR and accounting, and must design goals with that in mind. Objectives should include compliance with laws and regulations regarding record keeping, employee status and taxes, among other things. The end result is an efficient department that helps keep employees satisfied and a business running smoothly.


Accurate paychecks are vital to employee satisfaction, and the bottom line of a business. There is no room for errors in recording and paying for hours worked, compensation rates, benefits, taxes and other withholding. Payroll software will accurately calculate taxes, overtime and withholding, but the initial data entry of hours or salary must be correct, and employee information, such as W-4 withholding, as well as exempt or non-exempt status, must be accurately entered in the system. Using well-written documentation and multiple verification steps during the payroll process, such as having employees cross-check work, can reduce or eliminate errors.


Setting employee expectations for when and how they are paid, and consistently following through, establishes a clear, timely and fair payroll system. Set deadlines for employees to submit their hours, work, expense reimbursements or other payroll-related matters, and enforce them uniformly and fairly. Ensure that the payroll department has enough time to process and meet a payroll schedule, whether it is weekly, bi-weekly or monthly, and always stick to whatever schedule applies. Check state regulations regarding providing pay stubs or statements of earnings, and how paychecks must be delivered to employees; and, create a strategy that follows the law. Consider including a section in a company handbook on payroll that sets forth employer and employee rights and obligations.

Cost Effectiveness

Payroll is a significant business expense, and keeping costs down is a good business strategy. Good payroll software can be a considerable initial expense, but the cost is offset by reducing the amount of time spent in processing payroll, and by producing reports that management can use to assess company performance and set department and company-wide goals. Payroll reports provide data that can affect and help create efficiencies in hiring strategies, staffing schedules and operations in departments across a company, and identify areas for improvement.


The Fair Labor Standards Act (FSLA) is overseen by the U.S. Department of Labor, and it regulates such things as minimum wage, employee classifications, overtime, the duration of record-keeping and what comprises acceptable time and payroll records. Employers who fail to abide by the act can be fined or prosecuted. States also have regulations regarding labor practices, paying employees and taxes. The IRS requires employers to keep tax and employee records for a minimum of four years. Keeping payroll records is also necessary for auditing purposes. A prime goal of any payroll department is to devise a record-keeping strategy that complies with all laws and regulations, and emphasizes the secure storage of sensitive employee information.