Payroll Calculation Tips
Payroll calculation for your company may seem like a demanding, unpleasant task. However, things don’t have to be that way. Payroll calculations can be done quickly and effectively online using simple tools or by outsourcing to a payroll company.
Locate the necessary resources and information, payroll errors could lead to significant issues for your company.
Here are some pointers for handling and calculating payroll correctly.
Use an online payroll calculator
Employers can easily take care of the fundamentals, like determining withholdings and deductions in their state, thanks to online payroll calculators. Others go so far as to help with more complicated matters like garnishments and 401(k) payments.
Payroll calculators offer business owners piece of mind and help with avoiding typical payroll errors that can catch Uncle Sam’s eye at tax time.
Keep up with the latest requirements
Making sure to use the most current information helps to avoid creating potential problems, for your employees and the company. You can spend the time to find the information you need on the federal and state level from the IRS and your own state, or go the fast, safe route by using online software or having a payroll company handle it for you.
Understand what deductions need to be taken
Make sure you’re deducting the appropriate amounts from each employee’s paycheck. Things other than the normal deductions like IRA contributions to court-mandated child support could be coming out of some checks.
You may experience issues with under or overpayment if you are unclear about what taxes and other deductions need to be taken out. You don’t want to make things difficult for a worker who is unaware that their check is inaccurate or that a crucial item is going unpaid.
To avoid issues, some businesses outsource payroll to another firm and making sure they receive the correct pertinent information. Managing your company’s payroll means taking deductions seriously.
How to Calculate Employee Net Pay
To determine net pay, start with the employee’s gross pay (total pay for the pay period), then subtract state and local taxes and any deductions. Net pay refers to the amount an employee actually receives in their paycheck. For employees who are on salary, gross pay is determined by dividing their annual salary by the number of pay periods in the year.
Federal income tax withholding
The amount of federal income taxes withheld is based on the information the employee provides when they fill out a W-4. Employees can change their information by submitting a new W-4 form at any time, but no more than once in a pay period.
W-4 forms are complicated and can be difficult for some people to fill out. Since it’s against the law for employers to help or give advice, the employer should direct them to an IRS withholding calculator, or the IRS Publication 15-T, which has instructions for filling out the form.
Determine your state’s withholding
Every state has different tax rates and rules, and there are different tax rates per county and even city. Knowing your local tax withholding rates is crucial. A chart of the state income tax withholding forms used by each state is available from the Bureau of Labor Statistics.
Automate your process
Automating your payroll process reduces the possibility of making mistakes, is faster, and a more efficient use of your time. Using online calculators or software are popular ways of doing payroll, along with hiring a payroll company to do it for you. Doing your payroll does not have to be difficult or stressful.
Whether you have an established business or are just starting a new one, doing payroll has to be done but it doesn’t have to be stressful. Automating or outsourcing it frees you up to focus on other areas of your business.
Jeffrey Ressler owns a boutique, full-service accounting firm in Boca Raton, Florida that provides individualized financial services, expert tax preparation, tax planning for individuals and companies, and finding solutions to IRS problems.