How Long Does It Take to Run Payroll? (4 Simple Optimizations to Try)

Defined HR processes help your company stay on task and on budget—and payroll processing is no different. But does running payroll really have to steal so much time out of your busy schedule?

Our research shows that payroll takes some HR professionals hours, or even days, to complete, and many still have to chase down their coworkers for timesheets and manager approvals each pay period. And time isn't the only factor—a counterproductive system also leaves companies open to more errors.

Even small changes could have a big impact on how you spend your time. And with a reliable payroll process that practically runs itself, you can also avoid costly compensation mistakes that put your reputation, financial standing, and employees' trust in your company at risk.

If your payroll system needs a refresh, BambooHR is here to help. Read on to learn more about payroll processing, what can make it take so long, and some of the things you can do to create a payroll process that feels faster and easier than ever before.

What Is Payroll Processing?

Payroll processing refers to the steps employers take to calculate and distribute employee payments. Specific payroll processing methods vary from one organization and industry to the next, but they involve diligent timekeeping, adherence to federal, state, and local regulations, withholding benefit amounts, and secure recordkeeping practices.

How Does Payroll Processing Work?

Payroll processing usually occurs on a schedule—weekly, biweekly, semimonthly, or monthly. A payroll administrator uses a pay period calendar to ensure it's always done on time, so their employees know exactly when to expect their paychecks. On a basic level, the steps for processing payroll include:

1. Reviewing timesheets: Collect and approve the timesheets for each employee and contractor on your payroll and figure in any PTO they've taken that pay period.
2. Calculating total earnings: Multiply the employee's total time worked by their wage rate to calculate their gross pay, or total earnings. (This step will be handled differently for salaried employees.)
3. Deducting benefits contributions: Subtract any pre-tax contributions from each employee's gross pay, such as the money for their health insurance, FSA/HSA, or 401(k).
4. Withholding taxes: Using the correct tax information for each employee, deduct the appropriate amount of payroll taxes from the remaining amount.

There may be extra steps in this process, like adding in bonuses, commissions, or reimbursements, but this varies by company and employee. The final steps include issuing payment via direct deposit or paycheck and securely storing company-wide payroll records for that cycle.

For some organizations, payroll processing doesn't fully run on schedule. Instead, they issue on-demand pay using a digital wallet or prepaid card. This means employees have access to their money as it's earned and can request instant fund transfers anytime. At the end of the pay period, a payroll administrator simply issues the remainder of their earnings following their usual payroll process.

Learn more: What Is Earned Wage Access?

How Long Does It Take to Process Payroll?

Payroll processing can take minutes, hours, or days, but it largely depends on the method you use. To give you an idea of what's involved, here's a quick snapshot of the three primary payroll methods and how each one can affect processing time:

• Manual payroll processes: Calculating payroll by hand requires an eye for detail. Manual payroll typically becomes less feasible, accurate, and efficient as a business grows—and this is especially true if you employ remote employees across state lines or internationally, which introduces a variety of complexities.
• Outsourced payroll services: Outsourcing payroll to a third party enhances the speed and accuracy of your payroll process. However, going through another company means you have less control over processing times, pay group updates, error resolutions, and other factors that affect how and when your employees get paid.
• Payroll software: Using payroll software in-house is like having the best of both worlds. You have full control over your payroll process, plus data security, custom reports, automated tasks, and more. Most payroll software solutions work with popular HR apps and are backed by support experts, so it's easy to adopt and get help when you need it most.

Which Factors Affect Payroll Processing?

Whether you're setting up your system for the first time or working with a new payroll provider, processing time is a key consideration. After all, you'll want to give your process enough lead time each pay period to ensure your employees are compensated on payday.

Here are five things that can affect your payroll process:

Payroll Processing Tools

It's not just about whether you're using pen and paper, software, or outsourcing payroll completely. Payroll processing times vary largely by method but can also depend on the tools used. For instance, many organizations use digital time-tracking solutions instead of relying on spreadsheets or punch cards, which streamlines this part of the process.

Employee Type

The type of workforce you employ also affects payroll processing times because compensation is handled differently by law. For instance, paying a large team of non-exempt employees will naturally take more steps than exempt employees because you need to track regular time plus overtime. And if you employ seasonal workers, you'll be running a heavier payroll workload during certain points in the year.

Compensation Structures and Schedules

Do you have salaried employees, hourly workers, or a mix of both? Do any of your employees earn bonuses or commissions? Your compensation structure also affects how long it takes to process payroll. And if you only pay your employees once or twice per month, there are inherently more variances to consider than if you only paid them weekly.

Federal, State, and Local Laws

It's complicated enough to figure out how to deduct payroll taxes in your area, but this crucial payroll processing step can take more time if you hire remote workers from other states. This is because different jurisdictions have different laws regarding employment taxes, and you'll likely have to abide by the tax laws in each remote employee's home state.

Payment Methods

How you pay your employees also affects payroll processing time. Paychecks usually take an extra day or two over other methods since you'll have to print and either hand distribute or mail physical checks. The time it takes a bank to clear a paper check can delay payday for your employees, too, especially during federal holidays.

Although quicker, direct deposit and digital wallets have their own processing times. It could take one to three days for your employee's pay to go through, depending on your system.

4 Tips to Speed Up Payroll Processing

Payroll processing doesn't have to be time consuming or bog down an already heavy workload. Speeding up your system benefits you and your employees. Here are four ways to save valuable time doing payroll:

1. Build a Routine

A payroll calendar isn't just for your employees—it's for you, too. Along with highlighting timesheet due dates and paydays, be sure it also lets you know when to start running payroll. This not only helps prevent processing delays or accidental oversights during holidays and major company events but also creates a routine that's easy to fall into every single time.

2. Use Time and Attendance Software

Digital timesheets make life easier for everyone, especially your payroll administrator. Employees can punch in and out on their computer or mobile device, and you can automatically pull that data right into your payroll system. This turns the time you'd normally spend calculating everyone's hours into quick edits and approvals.

3. Create a Payroll Processing Checklist

It's also a good idea to create a payroll processing checklist to help your routine run smoothly. Payroll checklists are especially helpful during your busy season when there's more on your mind, as well as when your regular payroll admin is out on PTO and someone else has to take the wheel.

4. Use Payroll Software

Software like BambooHR® Payroll automates routine tasks, which can take processing times from hours to minutes. Automated payroll features can do things like calculate earnings, file taxes, generate easy-to-read pay stubs, create targeted reports, and more. From W-4 forms to benefits, your employees' information is always taken into account and stored securely.