You may have overheard your company’s accountant talk about “billing wages” or “payroll taxes.” Payroll is a general term used for different types of payroll taxes and payroll taxes owed to state and federal agencies. Payroll is a list of workers who are paid by the company. Payroll also refers to the overall amount that an employer pays to his/her employees.
As a commercial function, it involves:
- Define the components of salary reception as a basis, and variable payment
- Develop an organization’s payment policy that includes license collection, flexible benefits, policy, etc.
- Releasing employee wages
- Collection of other salary elements (for example, the organization’s beverage supplier can provide information on the amount to be recovered from employees for beverages consumed)
- Efficient calculation of gross compensation, non-statutory and statutory deductions and net compensation
- Filing fees with the competent authorities, and filing statements
In short, it is safe to say that the payroll process consists in obtaining what is owed to the employees, also called “net pay” after adjustment of other necessary deductions and taxes. Check 2021 Pay Period Calendar
The importance of Payroll
Being paid for the work done is the foundation of the employer/employee relationship. It is an almost entirely implicit expectation (imagine, for instance, asking during a job interview if you will be paid accurately and on time) until something goes wrong when the whole report is in danger. Therefore, the payroll is essential. But it’s also stressful, time consuming, a bit complicated, and never ending. Even small compensation errors create massive headaches, and the largest can lead to severe legal and financial problems with employees or the government. However, despite its critical nature, even basic knowledge about payroll is relatively scarce outside the groups or individuals who deal with payments. Need to get IRS Tax W9 Form 2021
Ho to Do Payroll
Employees are hired to do specific work for a certain percentage of salary. Some employees receive a salary, which is the same amount each payday. Since the other employees are paid by the hour, the wages for the pay period varies according to the number of hours worked. Overtime may be included in the compensation of an employee who works more than a certain number of hours per week. This amount is called the employee’s gross salary. All payroll process calculations are based on the total payment amount for this payment period.
Thus, on a regular date set by the company, these employees receive payment. Some employees may receive patment at different times, depending on their status. For example, dependent employees can be paid twice a month, while hourly employees can be paid weekly.
After calculating employee compensation, the employer must withhold FICA taxes (social security and health insurance) and state and federal income taxes from each salary. The employer can also deduct other amounts of wages. This may include a health insurance contributions, charitable contributions, pension plan and union contributions.
But the “doing payroll” is not yet complete. After the employer distributes wages, further calculations are required.
The employer must calculate and reserve the amounts deducted from the employee’s salary, which will be paid later. Also, the employer must reserve a price for his contribution to FICA taxes and unemployment taxes.
“Payroll” also includes registration. A separate file should be saved for each employee, showing the amounts paid for each pay period for year-end reports. The records of employee rights and any change in compensation must also be kept.
The overall record of all calculations for all employees is called payroll. In this record are presented all wages and salary values for each pay period and the total for the year. If you have a payroll system as part of your organization accounting system, payroll accounting is part of that system. The totals are included in your company’s overall financial statements.
Payment calculations for a single employee over time are called income records. In addition to the income register, all documents relating to the withholdings, payment, and deductions of this employee must be kept during the employment relationship.
If it all sounds complicated, it is. This is why many employers outsource their wages by sending them to a bookkeeper, a payroll service or an accountant.
- Payroll charges are those that must be paid to the state and federal tax authorities as a result of compensation for work accidents (such as FICA taxes and unemployment rates). The Internal Revenue Service strictly defines payroll taxes as FICA (social security and public health care) taxes, but the term is often used in a general sense.
- Payroll processing describes the preparation of payment slips (including deductions), the distribution of payments and checks, and the transfer of payroll taxes. Payroll processing options include taking over accounting software, hiring an accountant, or hiring a payroll service.
How Payroll Works
The Payroll was initially the term for the list of people employed by an organization; however, it is now more often used to describe the total amount an organization pays to employees and the payment process.
How is the payroll process effectively handled?
From start to finish, the setup and processing of payroll follow the same basic plan for most organizations based in the United States. It starts with obtaining an Employer Identification Number (EIN) and ends with employee wages (or bank accounts). Here’s how it breaks.
Before you can pay, you must:
- Have an EIN: the number used by the federal government to identify an organization for tax purposes.
- Local and state identification numbers: like EIN, but at state and local level.
- Tax information for employees: W-4 forms for full-time and part-time employees, W-9 for employees.
- A budget and salary program: how much you will pay employees and how often.
- A tax payment plan: when you pay taxes for your organization.
To process payroll, you must:
- Calculation of gross salary: for hourly workers, this means combining regular working hours and overtime and multiplying by standard wage and overtime. If you are using traditional timesheets to send, with errors checked and approved, this process will take a long time.
- Calculation of net salary: after calculating local taxes, state, and federal based on information on employee withholding tax, add insurance, pensions, and other deductions and deduct this amount from gross salary.
- Deductions for reservation/distribution: taxes and other deductions must be deposited with confidence for subsequent payment to the corresponding entities or paid promptly according to their schedule.
- Payment of the program: printed checks or direct deposits to employees.