A manual payroll system requires painstaking application; the entire payroll process is done by hand. The likelihood of errors can be high with this system; therefore, manual payroll is best if you have few employees, such as fewer than 10. The U.S. Department of Labor mandates employers to pay employees appropriately for time worked. The IRS and the state require employers to fulfill certain payroll tax obligations. These regulations apply, even if your payroll is manual.
Things You'll Need
- Time sheets/time card
- Form W-4
- IRS Circular E
- State Income Tax Form
- State Withholding Tax Tables
- Blank Checks
Pay applicable workers based on their timekeeping data. Most likely you require hourly workers to use a time clock or to complete weekly time sheets. Pay them according to what the timekeeping system indicates.
For instance, say the pay schedule is biweekly and the employee earns $9/hour. The time sheet for Monday to Friday for two weeks shows: in–8:30 a.m., lunch in–1 p.m., lunch out–2 p.m., out–6:30 p.m. Subtract one hour for unpaid lunch, which leaves him with 9 hours for each day--45 hours total for each week (9 hours x 5 days). Pay the first 40 hours worked for each week at straight time. Pay overtime hours (those above 40) at 1½ times the employee’s straight time rate.
Regular calculation: 80 hours (40 hours x 2 weeks) x $9/hour = $720. Overtime calculation: 10 hours (5 hours x 2 weeks) x $13.50 ($9/hour x 1.5) = $135. Total biweekly pay = $720 + $135 = $855.
Figure salary compensation. Say the employee receives an annual salary of $47,000 and gets paid weekly. Calculation: $47,000 / 52 weeks = $903.85, weekly salary.
Not all salaried employees are exempt from overtime; the DOL narrowly defines this category. Check with your state labor board (see Resources) to know which employees are exempt from overtime.
Calculate involuntary deductions. Involuntary deductions are also called statutory deductions. They include payroll taxes, such as federal income tax, state income tax, Social Security tax and Medicare tax. Consult the IRS Circular E for federal payroll tax regulations and your state taxation agency (see Resources) for state payroll tax regulations.
Withhold federal income tax based on the Circular E’s withholding tax tables and the employee’s W-4 form. Withhold Social Security tax at 6.2 percent of gross income, up to $106,800 for the year. Withhold Medicare tax at 1.45 percent. Consult your state withholding tax tables (see Resources) and the employee’s state income tax form to determine state income tax withholding. Involuntary deductions also include wage garnishments; consult the garnishment paperwork for instructions on how to handle the deduction.
Compute voluntary deductions. This includes deductions the employee agreed to, such as parking fees, union dues, and retirement and health benefits. The deduction varies by plan type. Make the deduction based on the employee’s pay frequency, such as medical deduction for one week if paid weekly and retirement contribution for two weeks if paid biweekly.