A Step-by-Step Guide on How to Process Payroll in 8 Easy Steps
Processing payroll is a daunting process for most employers, but this step-by-step guide will show you how to do it in 8 easy steps!
The process of processing payroll is a daunting task for employers. However, this step-by-step guide will show you how to do it in 8 easy steps.
A paycheck is a sum of money that an individual gets at regular intervals for work done. The term paycheck is often used to refer to the sum of money that is paid out at a particular time, such as biweekly or monthly. A paycheck can also be called a salary check or a wage check.
1. Determine The Time Card Information
Ensure that you have all the required information for paying your employees.
Gather all the information and Determine the time card information:
– The number of hours worked by the employee
– The hourly wage for the employee
– The total amount of wages earned by the employee
2. Calculate Gross Pay
How to determine Gross pay
A person’s gross pay is the amount of money they make before taxes and other deductions.
To calculate gross pay, a person needs to know what their hourly wage is, how many hours they work per week, and how many weeks they work per year.
The gross pay for a 40-hour workweek at $10 an hour would be $400. This means that the person earns $10 an hour for every hour that they work.
Overtime pay rates are 150% of the employee’s standard rate for each hour over 40 in a workweek unless state law sets different rules. Different states have different regulations when it comes to overtime for salaried workers, so be sure to check your state’s laws about how this applies to you.
If you are paying any bonuses, reimbursements, or other incentives to members of your team, be sure to include those in their take-home pay.
3 . Get the payroll taxes
Determine payroll taxes
The total taxes that are taken out of an employee’s paycheck are called payroll taxes.
Depending on where the employee lives, the amount of taxes that need to be taken out of their paycheck would vary. Typical withholdings are.
Federal income tax: Based on Form W-4 information
State income tax: Based on W-4 information
Social Security tax: 6.2% up to the Social Security wage base
Medicare tax: 1.45% (or 2.35% with the additional Medicare tax rate of 0.9%)
Local income tax: Varies by locality
SUI tax: For employees in Alaska, New Jersey, and Pennsylvania
State-specific taxes: Varies by state
Employers are responsible for contributing to some of these taxes, such as Social Security, Medicare, federal unemployment (FUTA), and state unemployment (SUTA) taxes.
Side Note: The amount of tax taken out is determined by the employee’s income level and the type of employer.
Social Security Tax: Social Security tax, or FICA, is a payroll tax that was created in 1935 to provide retirement benefits for workers who were not covered by a company pension plan. The Social Security tax is collected by the Federal government, but it is managed by the Social Security Administration (SSA). The SSA pays monthly retirement benefits to retired workers and their families as well as disabled workers and their families.
Medicare Tax: Medicare tax, also known as FICA, is a type of payroll tax that was created in 1965 to help provide medical care for retirees with no other source of health insurance coverage. Unlike Social Security Taxes which primarily go toward retirement benefits, Medicare Taxes go toward medical
4. Figure out employee deductions
In addition to withholding taxes from employees’ paychecks, you may need to subtract deductions as well. Deductions can be pre-tax or post-tax, depending on the type of deduction. It’s common to take a deduction for items like this:
Health insurance premiums
Life insurance premiums
Retirement plans (401K, FISA, HSA)
If one or more of your employees have deductions, be sure to deduct them before you submit your payroll. With payroll software, you can set up deductions so they automatically deduct each pay period.
5. Calculate Net Pay
Calculate Net Pay
Net pay is the amount of money that a person receives after taxes, deductions, and other withholdings. The net pay is calculated by subtracting all the withholdings from the gross pay. The withholdings are calculated based on federal and state income tax rates, social security tax rates, medicare tax rates, union dues, retirement plans, etc.
Net Pay = Gross Pay – Payroll Deductions
The employee’s net pay is how much they will bring home after taxes and deductions.
6. Approve Payroll
Payroll is the process of calculating and distributing salaries for employees. After all the calculations of wages, tax deductions, and other payroll-related tasks have been completed and verified, you can approve payroll.
Once you’re satisfied with your payroll, we can go ahead and finalize it.
7. Pay Employees
How to handle payments:
8. Distribute Pay Stubs
The last thing you’ll want to do as an employer is distributing pay stubs. You can give out paper stubs to your team in person or via mail. Or, alternatively, one of the best ways to reduce costs for small businesses is to give employees access to electronic pay stubs. This can be done through software or an employee portal that is accessed by the employee. This way, there is no need for the company to print out paper pay stubs. There are many benefits of this system, including a reduction in paper use, reduced need for physical office space, and increased security
When managing employees’ salary deductions, it is important that they can view a breakdown of what was taken out of their paychecks for records. This should give them a clear understanding of how much money they should be bringing home with them at the end of the week.
Summary – A Step-by-Step Guide on How to Process Payroll in 8 Easy Steps:
Determine The Time Card Information
Calculate Gross Pay
Get the payroll taxes
Figure out employee deductions
Calculate Net Pay
Distribute Pay Stubs