What data is needed to process payroll?

Payroll is the critical process all businesses must undertake to ensure that their employees get paid for their work. But before they can actually process their payroll, there’s a whole lot of data that needs to be collected, especially before the very first payroll run. 

Whether payroll is processed in house or outsourced to an external payroll service provider, making sure all the necessary data is available is crucial. But what information is actually required to process payroll? Let’s take a closer look at the different sets of data needed for payroll. 

The employee’s personal information is the basic HR data which is needed to add the employee to the business’s payroll. This data therefore only needs to be added to the payroll system once—and then updated if there are any changes. What data is required for payroll varies from country to country, but the necessary information generally includes: 

• Basic information, such as the employee’s name, address, phone number, email, bank details, social security number, date of birth and marital status

• Financial information, including tax ID, previous payslips, existing insurance coverage, tax reports, and more

• Payroll documentation, such as a copy of ID, tax forms, etc.

In addition to the employee’s personal information, the organization also needs to collect compensation-related information as stated in the employee’s individual employment agreement and feed it into the payroll system. This should include:

• Base salary, either fixed as an hourly rate, or a set monthly/yearly amount 

• Overtime pay rates

• Benefits and perks (aka fringe benefits), which can include allowances (e.g. work-from-home allowance, wellness allowance, meal allowance, and transportation allowance), additional insurance, and equity compensation

The employee’s personal data and the general compensation information as outlined in the employment contract are usually fixed and reused for each new payroll run. However, in case of changes, the payroll information needs to be updated immediately to ensure the accuracy of the payroll. Such changes can include: 

• Changed personal information, e.g. changed marital status, new bank details, etc.

• Permanent changes to the employee’s compensation, such as newly introduced allowances or a new salary level

• Additional one-off payments, like expense reimbursements, special bonuses, or commissions

Unless there are changes in the employee’s personal situation or he or she gets a raise, the basic information needed to process payroll usually remains unchanged. What is constantly changing, however, is the number of hours worked and the amount of paid time off (PTO) taken by the employee during the pay period for which payroll needs to be calculated. 

Hours worked and PTO therefore need to be tracked and recorded for each pay period, and the data must be made available to whoever is responsible for processing payroll. When tracking PTO, it’s important to consider any time employees take off work for personal reasons, including vacation days, sick leave, maternity leave, parental leave, and more.

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As we’ve seen, the information needed for processing payroll can be divided into two sets of data: fixed data that is stored in the payroll system and used for each payroll run (usually) without any alterations (i.e. employee personal information and contractual compensation data) and the data that changes form pay period to pay period and hence needs to be uploaded into the system before each payroll run (i.e. hours worked and PTO).

Here are the different sets of data required for payroll at a glance: 

• Employee personal information, such as social security number, marital status, bank details, etc.

• Base salary, overtime rates, and benefits

• Hours worked and PTO taken during the pay period in question

• Information on compensation changes and updates on employee personal information