How to Create a Payroll from Scratch: A Complete Guide

It is an essential document in any company, both for employers and employees. Payroll is a document that records the salary received by each professional on a monthly basis, and preparing it requires specialized knowledge. Would you like to know how to create one? Here is a complete step-by-step guide to understanding what payroll is and how it is prepared.

What is payroll?

“The earnings to be received by an employee who is on the payroll.” “Salary, pay, remuneration…” This is how the Royal Spanish Academy defines the term discussed in this short guide: What is payroll? Many readers will probably already have at least a general idea of how to define the concept, as it is a document commonly used in the world of economics, particularly in business. 

Payroll can be defined as a receipt confirming the payment of an employee's salary. It is a document usually received by a professional employed by a company and primarily sets out the amount they receive for their work, the deductions applied and other important information, as we will see below. 

It must be issued — or received — monthly, when payment for the work performed is made. What sections does it include? How is it prepared?

Parts of a payroll

Payroll consists of several sections that must include key information about both the employer and employee, remuneration, contribution bases, etc. 

1. Header

This section of the payroll contains the personal details of the employee and the company: 

• Company's legal name, registered tax address, tax identification number and Social Security contribution account code.
• Employee details: full name and ID number, Social Security affiliation number, professional category, contribution group, length of service and contract code. 
• Pay period: the month being paid, start date, end date and total number of days. 

2. Earnings

Salary items earned by the employee during the month worked, before deductions are applied. When added together, they make up the gross salary. 

• Base salary
• Additional payments
• Overtime
• Social Security benefits

3. Deductions

This section of the payroll includes the amounts deducted from total earnings. These deductions determine the employee's net salary: 

• Employee Social Security contributions
• Personal Income Tax withholdings
• Salary advances
• Value of benefits received in kind.

4. Net pay

This section shows the employee's net salary. It includes, on the one hand, total remuneration, referring to the monthly salary on which the employee has paid contributions. On the other hand, it may include prorated extra payments. If these are paid separately, this section would remain empty. 

5. Company stamp and signature

This section should include: 

• Payroll payment date
• Bank and employee account number
• Company stamp or employer's signature
• Employee's signature confirming receipt

Types of payroll

There are several types of payroll. If you want to know what options are currently available, these are the main classifications: 

1. Payroll according to payment frequency: weekly, biweekly or monthly. 
2. Payroll according to employee type: senior managers or executives and general employees. 
3. Payroll according to special circumstances: including overtime, prorated extra payments, sick leave, etc.

How to create a payroll step by step

When creating a payroll step by step, the best approach is to follow the sections that make up the document. This is a basic but effective guide to preparing payroll easily. 

First comes the header, as mentioned above, followed by earnings, including both salary and non-salary payments, deductions, net pay and the final signature section. 

Advances in technology have made it possible to automate almost every part of the process. Today, there are numerous payroll management programs that are easy to access. Some are free, while others are paid solutions offering additional features and functionality. 

Some of the solutions most commonly used in business management and administration departments and in Human Resources include: 

• Sage NominaPlus
• A3 Innova NÓMINA
• MsNómina
• Nóminasol
• Payfit
• Nomio

Who prepares payroll in a company?

When it comes to preparing payroll, the Human Resources department is usually responsible for producing these documents. These professionals have detailed knowledge of salaries, variable compensation, different types of contracts and the procedures required when dealing with public authorities, including document management and registering or deregistering employees with Social Security. 

Depending on the size of the company, some organizations have their own internal departments, while others outsource these tasks to specialist firms responsible for preparing and sending payroll, managing employee registrations and terminations, holidays, maternity leave, changes to bank account details and other administrative matters. There are numerous factors to consider when managing company payroll. 

The task of preparing and managing payroll therefore usually falls to professionals with specific training and experience. EAE Barcelona offers specialized training through its Master in Human Resources, which covers important issues such as this. It is essential to understand what lies behind each document in order to prepare it correctly. It is also important to explain payroll to employees when necessary so that they understand both their gross salary and the net amount they ultimately receive. 

A section of the most recent PISA Report highlighted that young people in Spain lack basic financial skills such as interpreting an invoice or a payroll document. When entering the labor market, it is essential for people to understand what this document contains. For this reason, Human Resources departments should make an effort to educate and inform employees about what payroll is, the sections it contains and how it is prepared.