How to Handle Payroll
Payroll duties include paying employees and calculating their taxes and other deductions. Depending on the size of your company, you might need one payroll representative or an entire staff. In-house payroll can be done through a manual system or a software system. You can also outsource the work to a payroll service provider. A few basic rules apply to most companies.
Other People Are Reading
Instructions
-
-
1
Set your payroll adjustments and time card submission due dates according to your pay frequency. For example, if the pay frequency is biweekly, you can require time cards and payroll adjustments to be turned in no later than four business days before the actual pay date. This allows adequate time for payroll processing.
Payroll adjustments include address and tax changes, new-hire and termination processing, direct deposit setup or changes, and wage adjustments such as pay raises. Create yearly payroll calendars showing the due dates and respective pay dates. A printing shop can make the calendar for you.
-
2
Ensure you have the necessary time card data to pay hourly employees. If you use paper time cards, verify the time manually. If you use a computerized time-keeping system, transport the data onto the payroll software. Ensure all time cards and time sheets are accurate before paying them. If you have questions about the time card data, consult your supervisor or the employee's supervisor.
-
-
3
Ensure that all salaries for non-hourly employees are appropriately paid. Payroll software will automatically calculate the pay based on the yearly salary and number of pay periods. If you do the payroll manually, follow a formula every pay period to ensure the gross pay is correct. For example, if an employee's salary is $63,000 a year and he is paid twice a month, use the following formula: $63,000 divided by 24 pay periods equals $2,625 gross pay per paycheck.
-
4
Make the necessary tax deductions. You need to deduct federal income tax, Social Security tax and Medicare tax from employees' wages. Determine the employee's federal income tax using the IRS Circular E and her filing status and allowances, as shown on her W-4. Figure Social Security tax at 6.2 percent of gross wages (up to $106,800 for the year) and Medicare tax at 1.45 percent of all gross wages. Payroll software automatically calculates these taxes for you.
Withhold state income tax according to your state's guidelines. Some municipalities also require that local taxes be deducted from paychecks. Payroll software can calculate these deductions. If you are doing payroll manually, you will need to obtain local tax tables to calculate these deductions.
Deduct wage garnishments (if applicable) according to the notice's withholding instructions.
-
1
Tips & Warnings
Deduct pretax voluntary deductions, such as 401k and medical benefits, before withholding payroll taxes. Deduct post-tax deductions, such as Roth 401k and union dues, after withholding payroll taxes.
Verify the payroll before printing paychecks and pay stubs and before you generate the direct deposit file.
References
Resources
- Photo Credit check in macro image by Alexey Klementiev from Fotolia.com
