Why Payroll is Important

Payroll is one of the most important financial components of a business because it can have a serious impact on the net incomes of an organization. Additionally, payroll is subjected to several laws and regulations. Because of the legal, and even ethical, factors involving payroll it’s important that a business keeps a precise record of its payroll.

Paying Employees

Organizations must pay employees on a timely and accurate manner – which a payroll system will provide. If you do not compensate employees their full salary or hourly wages, you’re essentially stealing from them. You’re also breaking the law.

The U.S. Department of Labor, Wage, and Hour Division has established numerous guidelines that determine everything from minimum wage, minimum paydays, overtime pay requirements, which deductions are allowed and which employees are exempt or nonexempt. If a business fails to comply with these laws,the employer will be forced to pay the employee’s back wages, a waiting time penalty, attorney fees, liquidated damages, and may even face criminal or civil penalties.

Withholding and Filing Taxes

The federal government requires businesses to withhold a percentage of a paycheck, for both the employer and employee. These taxes include Social Security and Medicare, Unemployment, and Federal Income Tax. Employers must also pay state income taxes, as well as state unemployment and disability taxes. Some states may even require additional taxes like a job-training tax. Failure to pay these taxes can result in penalties, a tax lien or levy against the taxpayer’s property, and tax audits.

To avoid any prosecution of problems with the IRS, businesses must gather a W-2 form from each employee and file it with the Social Security Administration by Mid-April of each year.


Payroll can also be used to provide valuable feedback for you business. The most obvious feedback that payroll can show a business is whether or not the business is making a profit. A precise payroll could determine that a business is losing more money then it’s bringing in because it is spending too much on paying employees. If that’s the scenario, the business may have to consider laying off some of it’s employees so that it can become more profitable.

Every business owner must have an accurate and consistent payroll so that they can pay employees correctly, withhold the right amount of taxes, and have a better understanding of their cash flow.

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