Payroll processing works by systematically managing employee compensation, ensuring accurate and timely payment of wages. The process begins with gathering essential employee information, including hours worked, salary rates, overtime, bonuses, and deductions such as taxes, benefits, and retirement contributions. This data is then entered into a payroll system, which calculates the net pay for each employee after accounting for all deductions and withholdings.

Once calculations are completed, the payroll department prepares and distributes paychecks or direct deposits to employees. Additionally, payroll processing involves generating payroll reports, filing tax forms, and remitting withheld amounts to appropriate government agencies. Regular audits and reconciliations are performed to ensure accuracy and address any discrepancies.