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What Is Payroll

Payroll refers to the process of calculating and distributing wages and taxes for employees. It involves tracking employee information like names, addresses, social security numbers and tax withholding status. Payroll also requires tracking hours worked, salaries, wages, overtime, tips, commissions and bonuses. From the total wages, required deductions are made for taxes, garnishments and other amounts before the net pay is distributed to employees. Maintaining accurate payroll records and making proper tax payments is essential for any business with employees.

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39 views2 pages

What Is Payroll

Payroll refers to the process of calculating and distributing wages and taxes for employees. It involves tracking employee information like names, addresses, social security numbers and tax withholding status. Payroll also requires tracking hours worked, salaries, wages, overtime, tips, commissions and bonuses. From the total wages, required deductions are made for taxes, garnishments and other amounts before the net pay is distributed to employees. Maintaining accurate payroll records and making proper tax payments is essential for any business with employees.

Uploaded by

sophia dagnino
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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What Is Payroll?

– Definition and Components

Mike Kappel | Nov 30, 2015

https://www.patriotsoftware.com/blog/payroll/what-is-payroll/

If your business has employees, you’ll have to do payroll. There’s no way to avoid it, but what is
payroll?
Well, payroll can mean a few different things:
1. Payroll refers to the employees you pay, along with employee information.
2. Payroll is also the amount you pay employees during each pay period.
3. Or payroll can refer to the process of actually calculating and distributing wages and
taxes.

Let’s dive deeper into the parts of payroll.

What is employee payroll, and what parts are included in a payroll program?
What is payroll composed of on a micro-level? In this section, I’ll break down employee
information, hours worked, salaries and wages, deductions, and net and gross pay.

Employee information
Before you can begin to run payroll, you need to collect some information from your employees.
Every employee needs to fill out Form W-4. This form will provide you with information about
each employee’s federal income tax withholding, along with their name, address, and Social
Security number. You need all of this information to properly run and distribute payroll.
Every time you hire a new employee, they will need to fill out a Form W-4.

Hours worked
If you have hourly employees, you have to keep track of the hours they work. This will ensure
you pay your employees the proper amount.
If you have salary employees, you may want to track the hours they work to make sure they are
putting in all of their time.

Time off
You may also want to track the time your employees take off work for vacation, sick time, and
holidays. What is sick pay like at your company? This is important if you have a policy that says
how much time employees are allowed to take off.

Salaries and wages


A salary is a fixed amount that you can pay an employee. Typically, an employee is given a
yearly salary, which is then divided by the number of pay periods in the year.
For example, you give an employee a yearly salary of $28,600. You pay the employee every
week, which means the weekly paycheck will be $550 before deductions ($28,600 / 52 weeks).
A wage is what you pay an employee based on the hours worked. You will set a specific rate of
pay for each hourly employee. To calculate an employee’s total wages, you will multiply the rate
of pay by the number of hours the employee works.
For example, you pay an employee $12 per hour. The employee worked 34 hours this week. You
will owe the employee $408 before deductions ($12 x 34 hours).

Overtime pay
All nonexempt employees should receive overtime pay. This includes both nonexempt hourly
and salary workers. Overtime hours typically begin after an employee works 40 hours in a week.
Overtime pay is one-and-a-half times the normal rate of pay.
Check your state overtime requirements, and learn how to calculate overtime where your
business resides. Some states have different overtime requirements, such as double-time pay.

Fringe benefits
Fringe benefits are a type of compensation. Benefits can include education assistance, health
insurance, retirement plans, and employee discounts. Any benefits you offer should be included
in payroll. Some benefits are taxable.

Other pay
Your employees could have additional sources of pay. Service workers may receive tips.
Employees must report all tips to you, and there are payroll taxes on tips. You may also choose
to pay your employees a commission or a bonus pay. You should include commissions and
bonuses when you run payroll.

Deductions
A deduction is any money you subtract from an employee’s total wages.

Payroll taxes
You will deduct payroll taxes from the wages of every employee. The amount you withhold from
each employee will vary depending on total earnings and Form W-4 information.
Payroll taxes include federal income tax, state income tax, local income tax, federal
unemployment tax, state unemployment tax, Medicare tax, and Social Security tax.

Garnishments
A garnishment is a court-ordered deduction post-tax deduction. A garnishment is used to pay off
an employee’s overdue debt. You could be instructed to deduct money from an employee’s
paycheck to pay for unpaid taxes, defaulted loans, and overdue child support. If you need to
deduct a garnishment, you will receive a notice from a court.

Net and gross pay


You will show an employee’s net and gross pay on a pay stub. Gross pay is an employee’s total
pay. IRS forms typically ask for an employee’s gross pay.
Net pay is an employee’s pay after all deductions are subtracted. Net pay is an employee’s take
home pay. Banks and other loan providers typically want to know someone’s net pay.

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