Payroll is a term used for the total amount required to pay workers and employees during a week, month or other period. It is basically an action that is performed by companies with employees. It is the process by which the company goes through to pay the employees. However, the term payroll has several different parts, which includes,

• The calculation and distribution of pay-checks (physical or electronic) to employees each payday.
• The financial records for employee wages and salaries, withholding, deductions, bonuses, pay for time not worked (holidays, vacations, sick time, etc.) and other items on employee pay-checks.
• It can also mean the record of total earnings of all employees for a company in a fiscal year.

How to “Do Payroll”

Employees are hired to do a specific job at a specific rate of pay. Some employees are paid a salary - the same amount every payday. Other employees are paid by the hour, so their pay for the pay period changes based on the number of hours worked. Overtime may be included in the pay of an employee who works more than a specific number of hours a week. This amount is called the employee's gross pay. All calculations in the payroll process are based on the gross pay amount for that pay period.

After the employee's pay is calculated, the employer must withhold FICA taxes (Social Security and Medicare), and Federal and State income taxes from each pay-check. The employer may also deduct other amounts from the pay-check. These might include a retirement plan and health plan contributions, union dues, and charitable contributions.

Employee Information

Before you can begin to run payroll, you need to collect some information from your employees. Every employee needs to fill out Form W-4. This form will provide you with information about each employee’s federal income tax withholding exemptions, along with their names, addresses, and Social Security numbers. You need all of this information to properly run and distribute payroll. Every time you hire a new employee, they will need to fill out a Form W-4.

Payroll Record Keeping

A separate record must be kept for each employee, showing amounts paid for each pay period, for end-of-year reports. Records must also be kept of employee authorizations and any changes in pay.

The overall record of all the calculations for all employees is called a payroll register. This record shows all amounts of salary and wages for each pay period and totals for the year. If you have a payroll program as part of your business accounting system, the payroll register is part of that system.

There are few important things which you need to consider while making a payroll and they are as follows,

• Hours worked: If you have hourly employees, you have to keep track of the hours they work. This will ensure you pay your employees the proper amount. If you have salary employees, you may want to track the hours they work to make sure they are putting in all of their time.
• Time off: You may also want to track the time your employees take off work for vacation, sick time, and holidays. This is important if you have a policy that says how much time employees are allowed to take off.
• Salaries and wages: Typically, an employee is given a yearly salary, which is then divided by the number of pay periods in the year. And a wage is what you pay an employee based on the hours worked. To calculate an employee’s total wages, you will multiply the rate of pay by the number of hours the employee works.
• Overtime pay: All non-exempt employees should receive overtime pay. This includes both non-exempt hourly and salary workers. Overtime hours typically begin after an employee works 40 hours in a week. Overtime pay is one-and-a-half times the normal rate of pay.
• Fringe benefits: These are a type of compensation which can include education assistance, health insurance, retirement plans, and employee discounts. These benefits should be included in payroll and some of them are taxable.

It is always better to conduct regular audits of your payroll process in order to make sure that you are correctly entering employee pays and deductions.

Written by Tax Professionals