A payroll cycle is the length of time between payrolls. Thus, if an entity pays its employees every Friday, this is a one-week payroll cycle, whereas paying them once a month is a monthly payroll cycle. Employers prefer longer payroll cycles since a reduced aggregate amount of processing labor is required to calculate a smaller number of payrolls per year.

Steps in the Payroll Cycle

There are several steps in a payroll cycle that must be completed in order to pay employees both correctly and on time. This involves collecting time worked information from hourly workers, validating it, and loading it into the accounting software. 

Taxes and benefit deductions must then be subtracted from the calculated gross pay amount to arrive at the net pay for each person. Finally, these payments must be distributed to employees, which may be in the form of cash, checks, or direct deposit payments.

Follow these steps to manually process payroll:

• Review employee hourly schedules.
• Determine overtime pay.
• Calculate gross pay.
• Determine deductions.
• Calculate net pay.
• Issue payments to employees through their preferred delivery method (e.g., paper check, direct deposit).

Keep these things in mind after each pay period:

• Keep payroll records.
• Be aware of potential miscalculations and mistakes.
• Report new hires to SARS

How to process payroll

Step 1: Meet Statutory Requirements

Ensure your company is registered for PAYE, UIF, and any other statutory requirements as required by law.

Step 2: Collect relevant employee tax information

Before you start processing payroll, your employees will have to fill out various tax forms so you can account for allowances and other tax details.

Before processing an employee's first salary from your company, you should also have these documents on hand:

• Job application: Even if the employee never filled out a formal application, having this document on file ensures that all key payroll information is in one place.
• Deductions: The employee may participate in company benefits, such as health insurance, a health savings account, or a retirement savings plan. Proper payroll processing ensures that the correct amounts for these benefits are withheld each pay period.
• Wage garnishments: You may be required by law to garnish your employees' wages if they owe money, such as debt payments or child support. Wage garnishments are court-ordered; ensure you have the proper documentation on hand and in your records.

Step 3: Choose a payroll schedule

Once you have the relevant tax and legal information to set up payroll, you can choose a schedule that works best for your business. 

There are four main schedules: monthly, semimonthly, biweekly and weekly. It's important to understand each plan before deciding which is best for your business. 

Once you choose a schedule, set up a calendar with paydays, and make note of the days when you'll have to process payroll for your workers to get their money on that defined day.

Build-in important tax dates, holidays, and annual tax filing dates. Keep in mind that you'll have to do this at the start of every year. You'll also want to establish the preferred delivery method for salaries, will this be by paper check or EFT.

Step 4: Calculate gross pay

Now that you've set a payroll schedule, you can start processing your first payroll. To do this, you must calculate each employee's gross pay, which is the total number of hours an employee works in a given pay period multiplied by their hourly rate.

Start by calculating the number of hours an employee has worked in a given pay period, and take note of overtime hours.

Remember to work out overtime worked by the employee, and any other incentives that might need to be added.

Step 5: Determine salary/wage deductions
You will need to calculate each employee's deductions. This may include deductions such as:

• PAYE
• Unemployment Insurance Fund
• Medical Aid or Insurance
• Pension Fund
• Garnishments

Step 6: Calculate net pay, and pay your employees

Subtract each employee's deductions from their gross pay. The amount left over is the employee's net pay or take-home pay. This is the amount you'll pay each employee. You'll have to hold the deductions and pay them with your payroll taxes each month or quarter, depending on the schedule you establish.

Once you've established each employee's net pay, you can pay them on their scheduled payday. 

Step 7: Keep payroll records

As you process payroll, it's important to keep records of your transactions for tax and compliance purposes.