Payroll Basics
Payroll is an intricate task that requires precision to meet its objective--ensuring employees (and related taxes) are paid on time and accurately. Payroll duties typically depend on the system being used. A manual system is done entirely by hand; an in-house computerized system is done with an on-site payroll staff and the use of payroll software; and an external system occurs when the employer outsources its payroll to a payroll company. Still, payroll involves some general tasks and rules.
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Instructions
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Implement a timekeeping system. As long as employees are compensated correctly for time worked, any timekeeping system is acceptable. If you have many hourly employees, use a time clock system. Otherwise, purchase time sheets from the stationery shop. Ask employees to complete their time sheets weekly and have their supervisor endorse it. A timekeeping system helps you to track employee time and pay them accordingly.
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Calculate hourly workers' time. Typically, hourly workers are entitled to at least the federal minimum wage. Furthermore, most qualify for overtime pay for hours worked over 40 in a work week. Pay regular hours at the employee's regular pay rate. Pay overtime hours at the employee's overtime rate of one and a half (1.5) times his regular rate.
For instance, say he earns $11/hour and his time sheet for Monday to Friday indicates: in--8:30, lunch in--12:30 p.m., lunch out--1 p.m., out--6 p.m. Subtract 30 minutes for unpaid lunch each day. This leaves him with nine hours worked each day, a total of 45 hours for the week.
Regular calculation: 40 hours x $11 = $440, gross regular pay
Overtime calculation: 5 hours x $16.50 ($11 x 1.5) = $82.50, gross overtime pay. -
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Figure salaried employees' pay. Salaried workers are generally paid the same each pay period. Furthermore, most are exempt from minimum wage and overtime pay. Use the salaried worker's annual salary and her pay frequency to figure her pay for each pay period. For instance, say she earns $70,000 annually and gets paid semimonthly.
Calculation: $70,000 / 24 semimonthly pay periods = $2,916.67 semimonthly pay.
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Comply with payroll tax laws. Employers are required to withhold federal income tax, Social Security tax, Medicare tax, and in most cases, state income tax from an employee's paycheck. Use the IRS' Circular E and the employee's Form W-4 to determine the federal income tax. Withhold social security tax at 6.2 percent of the employee's gross income, up to the yearly wage limit of $106,800. Withhold Medicare tax at 1.45 percent of all gross income.
If applicable, use the employee's state income tax form and the state withholding tax tables to figure the state income tax. Pay federal income tax, Social Security tax and Medicare tax to the IRS. Consult the Circular E for your tax deposit schedule. Make state income tax wage reporting and payments to your local Department of Revenue.
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Tips & Warnings
Keep payroll records for at least three years.
References
- Media Wiley: Creating a Payroll System
- U.S. Department of Labor: Use of Time clocks
- U.S. Department of Labor: Recordkeeping Requirements under the Fair Labor Standards Act (FLSA)
- U.S. Department of Labor: Salary Basis
- U.S. Department of Labor: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA)
Resources
- Photo Credit check in macro image by Alexey Klementiev from Fotolia.com
