If your company has workers, you have payroll to do. With no way to avoid it, but what is payroll?
Payroll can be described in a few different ways:
Payroll refers to the employee or employees you pay, along with employee information. Payroll is also the amount you pay workers during each pay cycle. Payroll can also refer to the process of calculating and distributing wages and taxes. Let’s look deeper into the working parts of payroll. What is payroll? What parts are included in a payroll program? What is payroll composed of on a micro-level? Let’s break down employee information, salaries and wages, hours worked, deductions, and net and gross pay.
Even before you can begin to process payroll, you need to collect some information from your employees first. Every employee needs to fill out W-4 Form. The form will provide you with information about each employee’s income tax withholding exemptions, along with employee’s name, address, and Social Security number. You need all this information to successfully run and issue payroll. Every time you hire a new employee, they will need to fill out a W-4 Form.
If you employee hourly people, you must keep track of the hours they work. This will secure you pay your employees the correct sum. If you have salary employees, you may want to record the hours they work to make sure they are putting in all their time.
Personal Time Off/PTO:
You may further want to record the time your employees time off work for sick time, vacation, and holidays. What is sick pay like at your company? This is critical if you have a policy that says how much time employees can take time off.
Wages and Salaries:
Wage is what you compensate an employee based on the hours worked. You set a peculiar rate of pay for each hourly employee. To measure an employee’s total wages, you will multiply the rate of pay by the number of hours the employee works. As for example, you pay an employee $12 per hour. The employee worked 34 hours this week. You will owe the employee $408 before deductions ($12 x 34 hours).
A salary is an established amount that you pay an employee. Generally, an employee is given an annual salary, which is then divided by the number of pay periods in the year.
An example, you give an employee an annual salary of $28,600. You pay the employee every week, which means the weekly paycheck will be $550 before deductions ($28,600 / 52 weeks).
All non-exempt employees should receive overtime. This includes both non-exempt hourly AND! salary workers. Overtime hours generally begins after an employee has worked 40 hours in a single week. Overtime pay is one and a half times the normal pay rate. You should check your state overtime requirements and learn how to calculate overtime where your business resides. Some states have different overtime requirements, such as double-time pay.
Benefits are a form of compensation. Fringe benefits can include health insurance, retirement plans, education assistance, and employee discounts. Any benefits you offer should be included in payroll and note that some benefits are taxable.
Other Type(s) of Pay:
Your employees could have additional sources of pay. Service workers can receive tips. Employees must record all tips to you, there are payroll taxes on tips. You may choose to pay your employees a bonus or commission pay. You should include bonuses and commissions when you run payroll.
Gross and Net:
You will display an employee’s net and gross pay on the employee’s pay stub. Gross pay the employee’s total pay. The IRS forms commonly ask for an employee’s gross pay.
Net pay the employee’s pay after all deductions are deducted. Net pay the employee’s take home pay. Loan providers like banks consistently want to know someone’s net pay.
Options to run payroll:
You have other payroll options when it comes to running payroll. Do payroll manually? With this option you will have to learn how to do payroll. This option will be the most time-draining. The IRS provides tax tables that you can use to calculate federal income tax withholding. Or use a payroll bookkeeper. Outsourcing payroll to a payroll bookkeeper can free up a lot of your time. The payroll bookkeeper can take care of the complete payroll process for you.
A deduction is any number you subtract from an employee’s total wages.
You will subtract payroll taxes from the wages of every employee. The number you withhold from each employee will differ depending on total earnings and how many withholdings the employee claims. Payroll taxes include federal tax, local tax, state tax, federal unemployment tax, state unemployment tax, Medicare tax, and Social Security tax.
Garnishment is a court-ordered post-tax deduction. A garnishment is used to pay off an employee’s debt that is overdue. You can be instructed to deduct money from an employee’s paycheck to pay for unpaid taxes, defaulted loans, and/or overdue child support. If you need to deduct a garnishment, you will receive a notice from the courts.
There are several parts to consider. Whether you are a new or seasoned employer, understanding this aspect of your company is necessary. First, you need to learn about every bit of payroll process. And then, find a way to run payroll that helps get you back to running your company.