What Is an Employee Payroll Used For?


Quick Answer

An employee payroll tracks all payments made by a company to anyone who provides services on its behalf, including hourly wages, bonuses and set salaries. It helps both the company and employee view periodic and annual pay statements, track tax withholdings and understand expenses.

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Full Answer

Many companies use a payroll system to track all the wages paid to its employees, with some systems also allowing the company to actually issue the payments in the form of physical pay checks or electronic funds transfers. The system creates a record of every time the company makes a payment to each employee, including a breakdown of how she earned the totally payment amount. For example, most systems are able to differentiate between a monthly salary payments, a one-time bonus, hourly wages and overtime payments. As such, this enables the company to monitor how it allocates employee payments and file the appropriate tax information each quarter.

Similarly, the payroll system generates a record of the payments for the employee to review, known as a pay stub. This document contains the same breakdowns of payment sources, in addition to any deductions for taxes, company-sponsored health insurance programs or contributions to a retirement fund. At the end of each fiscal year, the payroll system also helps the company generate a W-2 form for the employee that shows the total amount earned and withheld during the year so that she may report it on her taxes.

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