Kinds of Payroll Information
Payroll information is the data that acompany processes when determining how much each employee gets paid. This information includes specifications about the amount to deduct from each employee's paychecks in the form of taxes. A clean and accurate payroll database saves you considerable amounts of time at the end of each quarter when you file payroll taxes, and it will make your life much simpler if you are ever audited by a payroll tax agency.
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Gross Pay
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An employee's gross pay is the total amount he has earned in exchange for his work during the pay period, before you deduct taxes. Employees are either paid with wages, or a given amount for each hour of work, or by salary, which guarantees a consistent income in spite of a work week with variable hours. To calculate employee wages, multiply the number of hours the employee has worked by his hourly wage. Compensate any hours in excess of 40 hours per week with 1 1/2 times the regular hourly rate for employees classified as hourly.
Withholding Information
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Ask each employee to fill out IRS Form W-4 when he begins working for you and again if his withholding information changes, such as if he marries or has a child. Each employee will use this form to inform you of his filing status, such as married or single, as well as the number of exemptions he claims. This information corresponds to fields on the tax tables the IRS mails you at the beginning of each calendar year, telling you how much income tax to withhold during each payroll period relative to the employee's wages or salary.
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Taxes
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Your payroll information should reflect the amounts you withhold from each employee paycheck in the form of taxes. Income tax withholding should correspond with the withholding information on each employee's W-4 form. Social Security withholding equals 5.65 percent of each employee's gross pay up to $106,800 per year as of 2011 and Medicare taxes equal to 1.45 percent of gross pay. Some states allow employers to withhold a small percentage of unemployment insurance and industrial insurance taxes from employee paychecks. In addition, most states charge income taxes that employers are required to deduct from employee paychecks.
Net Pay
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An employee's net pay is the amount he has earned after you have subtracted all relevant payroll taxes. Net pay is also known as "take home pay." Although you write paychecks for the amount of your employees' net pay rather than their gross pay, it is important to keep track of all of the money you have withheld from their paychecks in order to avoid unpleasant surprises when it is time to remit payroll taxes.
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References
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