Payroll is integral to business operations. It’s more than the calculation and disbursement of employee wages. It’s a function that impacts employee morale, productivity, and the bottom line.
Unfortunately, 25% of employees have encountered paycheck errors. Per Clutch, small businesses risk accounting errors and data breaches. Why? A quarter of them still records finances using pen and paper. Also, almost half don’t even have accountants or bookkeepers.
Countries in the Middle East are subject to different social security, employee protection and tax laws. Every employer should pay particular attention to the payroll requirements. As an HR manager, be wary of policies on working hours, salaries, holiday allowances, and severance pay. Also, take the initiative to optimise your payroll operation.
In this article, we’ll cover the payroll steps, concerns, and optimisation solutions. Read below to learn how to stay on top of your payroll processing.
What Is Payroll Processing?
Before we go any further, let’s first define payroll processing.
Simply put, payroll is the process of paying employees. However, it entails several critical steps like tracking, calculating, and disbursing employee payments. It also involves withholding money for taxes, insurance, benefits, and other disbursements.
A dedicated team of payroll professionals usually handles payroll. In most cases, the human resource (HR) department tackles this crucial administrative function.
Payroll Considerations in the Middle East
Payroll processing in the Middle East may be different from in the West. Per the Global Payroll Association, countries in the region don’t impose employee income tax due to their governments’ oil generation revenues. These include:
- The United Arab Emirates (U.A.E.)
- Saudi Arabia
- Kuwait
- Oman
- Qatar
Countries in the region have similar working hour requirements to those in the West. They mandate employees to work for eight hours as usual. But they typically offer generous holiday allowance and sick pay. For example, U.A.E. employees have 32 days of annual leave and ten paid public holidays. That is not to mention extra vacation, sick, and maternity leaves.
In terms of the minimum wages, they vary from one country to another. However, the U.A.E doesn’t have a legal requirement for this. But for your reference, here are some:
- Kuwait: $1,028 per month
- Saudi Arabia: $632 per month
- Oman: $592 per month
- Lebanon: $450 per month
- Morocco: $225 per month
Severance pay is also another vital payroll consideration. The end-of-service award includes pay and benefits employees receive after the termination of work or end of the contract (EOC). Here are some references for other countries:
- U.A.E.: Termination pay is mandatory if employees leave with a good cause.
- Saudi Arabia: The end-of-service award is given no matter the termination reason.
- Qatar: The end-of-service benefit (EOSB) covers employees who continuously worked for more than a year.
Ultimately, it’s crucial to understand the payroll laws in different countries. Why? They vary from one place to another. This is what every HR manager should keep in mind.
Payroll Processing: 8 Steps Involved
As mentioned, payroll is a complex process involving many crucial steps. Let’s take a look at the eight steps involved.
1. Payroll Policy
The process starts with setting a payroll policy in place. Companies create policies to govern their payroll processes. They also guide employees on payroll obligations (attendance logging and leave filing). They even include complex processes like tax reporting and payroll funding.
Below are items to include in your payroll policy:
- Employee Attendance
- Work Time Tracking
- Wage Structure
- Payroll Deductions
- Leave and Benefits
- Overtime Pay and Holiday Allowance
- Payroll Record-keeping
2. Data Input
Before kicking off payroll operations, companies collect employer and employee data. The process includes two key things: data collection and input validation.
Businesses should secure information for tax filing. Meanwhile, employees fill out personal information sheets, tax forms, insurance forms, and more.
Below are the employer and employee details required:
Employer:
- Business Name, Address, and Phone (NAP) details
Employee details:
- Employee NAP details
- Deduction information
- Bank account information
- Tax IDs
3. Payroll Scheduling
Another vital aspect is payroll schedule. It refers to when and how often companies pay employees. They must decide the payment disbursement at the onset.
Here are some payroll scheduling options:
- Monthly
- Semi-monthly
- Biweekly
- Weekly
Note: Payroll scheduling should consider holidays and yearly tax filing as well.
4. Payment Methods
Aside from payroll scheduling, companies should also decide the payment method. It refers to how salaries will get released to employees.
Per Nacha, 93% get paid through direct deposit. However, below are other payment options for payroll:
- Cash
- Paper Cheque
- Direct Deposit
- Wire Transfer
- Mobile Wallet
5. Payroll Calculation
Shawn Plummer, CEO of The Annuity Expert, said that payroll calculation is the most crucial part of the overall equation.
Plummer added, "Companies should regularly track employees and efficiently compute their wages. The ultimate goal is to pay employees with the correct amount and on time.”
Payroll calculation cover two vital parts:
- Gross income is the total number of hours employees work in a given pay period times their rates. Note that you subtract hours of tardiness and absences from the gross pay. However, employees can use leave credits to cover tardiness and absences. Meanwhile, you add extra pay for overtime (OT) work.
- Net income is the number of money employees will receive after gross deduction. Gross deductions include employee taxes, insurance, and other benefit contributions. Simply put, net income is gross pay minus gross deductions.
6. Payslip Issuance
After payroll calculation, issuing payroll slips to employees follow suit. Payslips show how much employees will receive, including payroll calculation in itemised details:
- Gross income
- Gross deductions
- Net income
Logan Mallory, VP of Motivosity, said payroll transparency is the key. “Payslips should be easy to digest so that they won’t leave employees confused. More importantly, ensure that the calculation is 100% accurate.”
7. Salary Disbursement
At this point, you should disburse the money to employees come the scheduled payday. Here’s how the salary disbursement works:
- Hand over envelopes with cash. Note: Ensure manual recording of payment receipts.
- Mail paper checks to home addresses or distribute them at the office.
- Send direct deposits to the bank accounts.
- Deposit the money to mobile wallets.
8. Payroll Reporting
Catherine Schwartz, Finance Editor at Crediful, said payroll reporting is vital. “The payroll process doesn’t end with the salary disbursements. Have proper bookkeeping and accounting every month, and make sure everything reconciles.”
Another important payroll aspect is regulatory compliance. On top of this are tax reporting and tax filing. Aside from monthly and quarterly reporting, set an annual payroll process. This process is for year-end salary and expense closure, tax filing, and more.
Payroll Concerns: 4 Key Areas To Consider
Now, you understand the payroll processing and the steps involved. But as an HR manager, identify payroll processing challenges in your company.
That said, here are payroll areas of concern to keep in mind:
Payroll Efficiency and Accuracy: Payroll is a complex process involving eight critical steps. Ensure you speed up the process without incurring margins of error. That way, you pay employees the correct wage and on time. Dealing with employee complaints and payroll disputes is such a headache.
Team Collaboration: Payroll doesn’t happen within the four walls of the HR office, as you need to coordinate with each department. Every supervisor should track their subordinates and submit payroll information on time. That way, payroll processing will be faster, and employees get paid correctly on time.
Data Protection: Employee bank details and salary information are confidential. Protect them from physical and cyberattacks at all costs. Note: A data breach is a big no-no. Not only will it cost your company, but it might lead to legal ramifications.
Regulatory Compliance: Accurate wage payment is highly critical. And so are the proper withholding and disbursements of taxes, insurance, and benefits. Make sure to stay compliant with the regulations at all times. Doing so helps avoid employee complaints, hefty penalties, legal implications, and business closure.
Payroll Optimisation: 5 Solutions for HR Managers
Earlier, you identified some payroll concerns. Now, it’s time to optimise your operation. Below are solutions for payroll optimisation solutions for every HR manager:
Organise Your Payroll Data. It’s best to have everything in one place for seamless organisation. Make sure to have regular payroll file updates and maintenance.
Improve Your Payroll Process. As the HR manager, simplify your payroll workflows. Inform all stakeholders, from the employees logging attendance to supervisors tracking working hours.
Invest in Payroll Software. There are various payroll solutions available in the market. Leverage artificial intelligence (AI) and automation. Pick one best suited for your industry, business size, and needs.
Hire a Professional Bookkeeper and Accountant. They’ll help manage your payroll recording, accounting, and tax filing. Ultimately, they’ll ensure accurate and timely disbursements.
Get Payroll Outsourcing Services. A third-party service provider will help you stay on top of your payroll processing. It's a viable solution if you lack staffing, technology, and resources.
Staying on Top of Your Payroll Processing
Payroll plays a crucial role in business operations. It doesn’t only ensure accurate and timely employee compensation. It goes as far as boosting your employee morale and business profitability.
Every payroll department should focus on this critical business function. As an HR manager, know the payroll steps by heart and address some payroll concerns. More importantly, consider our recommended solutions for payroll optimisation.
With all these in mind, you’ll stay on top of your payroll processing. That will ultimately make your employees happy and your business profitable!
