Home Business The Beginner’s Guide to Calculating Payroll

The Beginner’s Guide to Calculating Payroll

362
0

If you’ve just started a new business, there’s a lot to think about—but have you worked out how to pay your staff?

Whether you have one employee or hundreds, you need to pay your staff on time and correctly. When calculating payroll, there are many things to think about, and it can be complicated if you’re new to the process.

To help you out, keep reading to find the beginner’s guide to calculating payroll—here’s everything you need to know!

Gather All Necessary Documents from Staff

Before you can start payroll, you need to make sure you have all the needed paperwork from each staff member.

These documents should be collected from each staff member within their first few days on the job, but if not, make sure you gather everything and store it securely in each employee’s private HR file.

It’s helpful to develop an onboarding process for your company so that each new staff member is initiated into the company in the same way—consistency is important.

Here are some of the most important documents.

Contact Details

You’ll need contact details for each employee, especially postal address and email. Many companies email out payslips each week, and the home address is useful for mailing out tax paperwork at the end of the year.

It’s also a good idea to have emergency contact details and phone numbers so that you can get in touch with relatives in case of a workplace accident.

Bank Information

Most payroll services pay via direct deposit into an employee’s bank, so you’ll need their bank account numbers and routing details. Double-check that all of these details are correct—otherwise, payment may go into the wrong account.

IRS Forms

When hiring employees, they need to complete tax deduction forms, as required by the IRS. For most hourly or salaried employees, this will be the W-4 form, which declares how much tax their employer should withhold.

Set Up a Payroll Schedule

Next, work out a payroll schedule. Most companies pay weekly, bi-weekly, or monthly. Whatever you decide, make sure employees know when they can expect their pay and always pay on time.

This is important, as your employees are looking forward to payday and depend on it to cover their bills.

To save time each week when processing payroll, use a payroll services software, like ADP paycheck calculator.

Calculate Gross Pay

Next, calculate gross pay for each staff member—gross means the total amount of money earned before any taxes or deductions.

For salaried staff, this is fairly straightforward. Their weekly or monthly wages will be the same each month, unless they’ve had any unpaid days off or overtime.

But for hourly staff, you’ll need to work out how many hours they worked, including overtime pay. Their hours worked each week may vary, so calculate accurately to ensure each staff member is paid correctly.

Note Sick and Annual Leave Days

After working out gross pay, you’ll also want to add in any annual leave, sick days, or personal days taken within the pay period.

Part of payroll is keeping track of leave balances, as leave and sick days need to be accounted for on payslips each month. This is helpful for employees, as they can quickly see their leave balances for the remainder of the year.

Make Deductions

The next step is to make tax deductions. Anyone freelancing for your company is responsible for their own taxes, but for staff members, tax needs to be withheld by the employer.

The amount withheld is based on the staff member’s W-4 form, and will usually include both state and federal tax. Other common deductions include Medicare, insurance, FICA taxes, and retirement plans.

If an employee’s tax status changes, based on factors like marriage or having children, then you’ll need to update your payroll records accordingly.

Tax deductions, while no one’s favorite thing, are important because they make tax time easier for employees. Tax is taken out bit by bit, instead of leaving employees with huge tax bills at the end of the year.

Issue Payslips

Once you’re sure you’ve calculated payroll correctly, you’ll want to process payroll. This is the process of transferring money from your company’s account into that of each staff member.

Then, staff members will need to be given documentation of their pay—this is known as a payslip. Ideally, a payslip should be issued on the day that staff members are paid.

Payslips can be printed and given to staff, but the easiest way is to email them to each employee. That way, it’s more secure for your staff, as email is private.

Encourage your staff to come to you if they have any questions or concerns about their pay. Mistakes can always happen, so if someone has been paid correctly, just apologize and fix the error.

Make Calculating Payroll Easy With These Tips

Calculating payroll is an essential part of running a business, large or small. However, the good news is that it doesn’t need to be confusing—just follow the steps above to create a smooth and easy payroll system.

Depending on the size of your company, payroll may be handled by the HR or finance department, so train them in running payroll so that everyone understands how it works.

With a timely and efficient payroll system, you’ll keep your staff happy—everyone wants to be paid on time! Get started today by developing payroll procedures for your company.

Did you find this article helpful? If so, please read on for more informative tips.

LEAVE A REPLY

Please enter your comment!
Please enter your name here