Payroll accounting is the structured process of calculating employee remuneration and handling all associated financial transactions, from gross pay calculation to final disbursement. It encompasses legal deductions, employer obligations, and internal reporting for financial and operational transparency.
This function is central to both HR and finance, ensuring that employees are paid accurately and on time, and that all statutory contributions and tax obligations are met.
Key Phases of Payroll Accounting
Payroll processing typically involves four key calculation steps:
1. Gross Pay Calculation
Gross pay represents the total compensation before any deductions and may include:
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Base wages (for hourly workers, via timesheets or pay slips)
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Base salary (for salaried employees, from HR master data)
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Commissions (especially for sales roles)
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Bonuses and special payments (e.g., holiday or year-end bonuses)
2. Net Pay Calculation
This stage applies all statutory deductions:
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Income tax (payroll tax)
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Solidarity surcharge
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Church tax (where applicable)
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Social security contributions:
These figures are drawn from the personnel master file and processed in compliance with legal regulations. The result is the net salary owed to the employee.
3. Payment Calculation
This step determines the final amount to be paid to the employee, factoring in:
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Reimbursements or non-cash benefits
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Voluntary or court-ordered deductions (e.g., employee advances, garnishments)
It’s important to note that net salary ≠ payment amount, due to these personal adjustments.
4. Evaluation and Reporting
Payroll data is then prepared for use by:
This ensures proper allocation of personnel expenses and compliance with audit and financial reporting requirements. Additionally, payments are remitted to:
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Employees
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The tax office
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Social insurance institutions, including the employer’s share of contributions.
