How to Do Payroll by Hand
Employers have specific payroll responsibilities that the law requires them to adhere to, such as paying employees properly for their services. To obtain this objective, the employer must perform payroll processing. For the latter to occur, a payroll system must be in place. Employers with few employees (typically less than 10) may use a manual system, which involves processing payroll by hand. A manual payroll system has an increased room for error. Careful application is necessary.
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Instructions
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Gather time sheet or time cards for hourly workers. The Department of Labor notes that whichever timekeeping is used or preferred, it must be accurate and complete. Pay employees according to what a time sheet or time card reflects. If the data is unclear, ask the employee's supervisor for clarification before paying the wages.
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Calculate regular hours (up to 40 for the week) worked at the employee's regular pay rate. Determine overtime hours (over 40 hours for the week) at one and one-half times the employee's normal pay rate. For this example an employee earns $12 per hour. His time sheet for Monday to Saturday shows: in at 8 a.m., lunch out at 12 noon, lunch in at 1 p.m., out at 4 p.m. Subtract one hour for uncompensated lunch and pay him seven hours for each day. This gives him 42 hours for the week.
Regular calculation: 40 hours x $12 per hour = $480.
Overtime calculation: 2 hours x $18 per hour = $36.
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Process wages for salaried workers. Pay workers according to an annual salary and pay cycle. The employee earns $68,000 annually and she's paid weekly.
Calculation: $68,000 divided by 52 weeks = $1,307.69 weekly pay.
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Withhold payroll taxes and other involuntary deductions, such as child support and wage garnishments that have been ordered by the court. Consult the IRS Publication 15 and use the employee's filing status and exemptions as noted on his W-4 form to figure federal income tax. For example, he earns $750 biweekly and claims single with two allowances on his W-4. Based on the 2010 Circular E, his biweekly federal income tax withholding would be $48.
Withhold Social Security tax at 6.2 percent of gross earnings and Medicare tax at 1.45 percent.
Social Security calculation: $750 x .062 = $46.50.
Medicare calculation: $750 x .0145 = $10.88.
Most states require withholding state income tax (see Resources) based on the employee' s state income tax form and the state withholding tax tables.
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Deduct voluntary deductions such as life, medical, disability and dental insurance, retirement contribution, union dues and parking fees. These rates vary by deduction. For instance, medical premiums depend on the carrier's rates and the employee's pay frequency; a weekly pay cycle includes one week's premium and a biweekly pay cycle includes two week's premium.
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Tips & Warnings
Deduct health insurance and traditional 401(k) plan deductions before deducting taxes; these deductions occur on a pretax basis. Deduct Roth 401(k) and life insurance after withholding taxes; these occur on a post-tax basis.
Some companies and employees have enrolled in the 125 cafeteria plan--which includes deductions for planned medical expenses, dependent care and other qualifying deductions on a pretax basis. These deductions must be made before calculating taxes as well.
References
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