Skip to main content

How to Process Payroll



The payroll process has changed much over the years, mainly in the manner in which it is processed. Most companies today prefer computer-based systems or outsourcing to process payroll. For a small company, manual processing may still be an option, although there are numerous cost effective ways to run it electronically. Use the following information to process payroll for your employees.
1. Gather employee wage information. Make sure it includes all wages, tips and compensation in the pay period.
  • If your system is computer-based, you will be able to run a report. If manual, collect all time sheets and other documentation.

2. Check to ensure that you have W-4 information for each employee to determine their marital status and with holdings. This will determine their tax liability for Federal Income Tax.

3. Calculate employee's gross pay from employment agreement or time sheet. Include tips, commission and overtime, if applicable.
  • Tax exempt deductions such as retirement or savings plans are deducted prior to calculating income tax, but other withholding taxes are according to gross.
  • If you are using a computer-based system, gross pay will be automatically calculated. If you are doing this manually, consider creating a payroll calculator spreadsheet that allows you to simply put in employee hours and it will calculate for you.

4. Determine withholding amount for Federal Income Tax. Go to the IRS Publication 15 (Circular E). Choose either the Percentage Method or the Wage Bracket Method and use the appropriate chart.

5. Calculate employee amounts for Social Security Taxes.
  • The Social Security tax rate is 6.2%. Once an employee has reached a gross cumulative pay of $106,800, no additional Social Security tax is withheld. Automated payroll systems will take no further tax automatically.

6. Calculate employee contributions for Medicare Tax.
  • This rate is currently 1.45%. All covered wages are subject to this tax. There is no salary limit at which employees become exempt from contributing.
7. Determine state and local tax liabilities based on your locality.

8. Deduct additional employee items such as retirement and savings plans, health insurance, charitable contributions or garnishments. Keep in mind that some deductions are before-tax, some after-tax.

9. Process payroll manually or through your selected system. Double-check amounts before dispersing. Print and disperse checks or stubs for direct deposit.

Comments

  1. Rahul Vikas20 July 2017 at 00:42

    Very informative Blog. Thank you for sharing this information.Payroll Outsourcing Services is a best choice for small business to reduce costs,avoid IRS penalties and mistakes.
    Payroll Outsourcing Company In India

    ReplyDelete

Post a Comment

Popular posts from this blog

Payroll is more than just cutting paychecks

Payroll outsourcing has been highly productive for companies and has been functioning since 1997. In the past five years this industry has recorded a CAGR of 15 per cent. In short, it is a win-win situation. Payroll outsourcing service For any business, managing payroll is indeed a dreadful task as it consumes a lot of man hours and is not also income generating. Employees are the backbone of every business. And businesses need to pay their staff. Payroll can also be your company’s biggest headache if it isn’t done correctly. Payroll processing is more than entering hours and printing paychecks. Simple mistakes can cost penalties and interest. In addition to keeping up with dynamic business scenario and government regulations, payroll processing proves to be time-consuming and costly tasks for most businesses. Whoever is doing your payroll whether a service provider or a member of your team must understand the relevant tax laws and regulations, all of which vary considerab
20 comments
Read more

Payroll Management Services

More than only standard accounting and tax filling services, Brooks Consulting helps in corporate tax filings and annual returns for the companies. We work closely with all our clients as we firmly believe that clear understanding of their business goal is crucial to impart the best payroll management services . Which system and procedures should be used to effectively deal with your company’s tax commitments? Where do you start? Tax management is daunting and risky undertaking at the best of times but these days businesses also need to combat with economic uncertainty and ever-changing regulatory oversight. Making sure that you have the right workforce in place and are employing the latest technologies to effectively manage your tax obligations, is not an easy task, especially if tax management is not the core job of your company. What’s more, tax deduction is different to different companies, depending on their divergent responsibilities within a company but one t
9 comments
Read more

What is Payroll Outsourcing

Payroll Outsourcing which involves employing an outside agency to do the routine work of managing salary, its calculation and payment, along with any other related functions, has transformed into an extremely successful industry. India is today one of the major destinations for payroll outsourcing. Some of the reasons for this are: Team is headed by group of Chartered Accountants which means all the statutory laws are taken care. Cost savings for the company on outsourcing payroll processing are extremely significant and can go upto 50% at times. Reductions and cost effectiveness can be achieved. Productivity is improved, as service quality provided is excellent and this frees the company from non-income generating tasks. Latest technology and software for payroll processing are used. Indian payroll processing service providers have a very highly specialized and expansive knowledge base in finance and accounting which would be of help to businesses globally. These
7 comments
Read more