If you’ve ever gotten a paycheck from a job, you can thank your company’s payroll team. A payroll is a list of the company’s employees and how much each person is getting paid. Payrolls are important for keeping track of each employee. It takes a lot of work to maintain, so some employers outsource this tedious task or hire a payroll manager to tend to it. There are also software programs for processing payrolls. Several components and steps make up a payroll system.
Payroll System
Important Documents
First, employers must collect information on each employee through Form W-4, which includes information on an employee’s federal income tax withheld, name, Social Security Number, address and other important information. Additionally, employers must have a Form I-9 to ensure employees are eligible to work in the U.S.
Pay Schedule
Next, employers must decide how and when employees will get paid. Employees can get paid weekly, biweekly, semi-weekly or monthly. If employees receive an hourly wage, employers need to calculate the total hours each employee has worked. If employees receive a salary, employers should make sure employees are working the proper amount of time.
Employees working on wages get paid hourly. With this in mind, employers should calculate the gross pay by multiplying the hourly wage by the total time an employee has worked that period. For example, if the hourly wage is $10 and an employee has worked 30 hours that week, their pay would be $300 before deductions, since 10×30 is 300.
Employees receiving a salary get a set amount of money per year, which is broken into smaller chunks. For example, if an employee’s yearly salary is $31,200 and they receive weekly pay, they would get $600 per week before deductions, since 31,200/52 is 600.
Time Off
Employers should also account for employees taking time off work for vacations, paid leave or sick days to ensure employees are receiving the right amount of pay.
Overtime Pay
It’s a good idea to keep track of overtime pay. Nonexempt workers, or workers who receive hourly wages and make under $35,568 annually, qualify to receive overtime pay for working more than 40 hours a week. Exempt workers––workers who receive salaries and above $35,568 annually––do not typically qualify for overtime pay.
Additional Pay
Employees can earn additional money through tips, commissions or bonus pay. Tips are taxable.
Payroll Tax
Employers need to withhold a certain amount of money from their employees’ paychecks to pay a portion of payroll tax. There are four payroll taxes: federal income tax, state and local taxes, FICA and FUTA.
The W-4 form collected from employees will help with federal income tax, as each person’s federal income tax differs due to personal circumstances. State and local taxes depend on the location of the business. FICA, or Federal Insurance Contributions Act, requires employers and employees to pay for Social Security and Medicare. The employer and employee pay 50/50. FUTA, or Federal Unemployment Tax Act, is for employees who qualify for unemployment benefits. Only the employer pays for FUTA.
What Employers Should Know
For an easier way to track employee information, employers should create and maintain a payroll record. Keeping track and maintaining a record will allow for more precise information and less mistakes. This will definitely come in handy when paying taxes. Being prepared and organized is key to staying on top of payroll processes since it can be difficult and time-consuming.
How to Manage Payroll and Payroll Taxes
Employers have many different responsibilities to manage, from running their business to assisting their employees. Sorting through payroll is a time-consuming but important task, one employers may find themselves struggling to manage on top of everything else to which they must attend every day.
Fortunately, there are ways to manage this to prevent burnout and stress. Employers can outsource this work or use payroll software.
Outsource Payroll Tasks
Some employers choose to hire someone to record and maintain payroll processes, including taxes. Those hired for the role are usually given the title “payroll manager” or “payroll accountant” and are usually tasked with handling all employee information and ensuring employees are paid on time.
Payroll Software
Payroll software completes payroll processes and automatically submits payroll taxes for you. This option is often cheaper than hiring someone to do the work. Different programs offer different features, so it is best to review each one carefully to locate the one that best meets your needs.
Better Understanding
A payroll system is important for any and all businesses. For employers, it can be a handful and require assistance, while for employees, it’s great because it means getting paid. Hopefully, employers and employees will now have a better understanding of the payroll system and it will be a less stressful experience for all.