Employers must accurately calculate the payrolls of their employees (if they have any) working for their business. If there is an error in the calculation of payroll of your employees, they might get too much money which was withheld for their taxes, or too low than what they truly deserve to be paid. Not only that, errors in the calculation of payroll might earn your business a penalty from the IRS.
Here are some steps for calculating the payroll of your employees. Remember that you can skip all the manual processes and use an Oregon Payroll Calculator to make everything free from human errors. Still, here are all the manual steps you’ll have to follow if you need to accurately calculate the payrolls of your employees.
Ask The Employees To Fill Out The Federal And State Tax Forms
There is a form called the W-4 form (for federal tax reasons) that you should give to your employees and ask them to fill before officially recognizing them as your working employees. There is also the equivalent of the W-4 form on the state level, but every state has a different name for that form depending on their tax laws and name of the state. Here is what those forms are good for.
- These forms are actually filled by the employees to let the business know about their current tax-paying or registration status. Depending on the exemptions that every employee claims to have, you’ll have to alter the amount you withhold from their paycheck for tax reasons. But there are times when the employees might own money when it finally comes to paying the taxes.
- In states that don’t require the businesses to pay any tax, you won’t be required to get any state tax form filed by the employees, since there is no requirement of the state on taxes.
Pay Attention To Detail
When collecting the filled forms from your employees, make sure that they are proofread and free of any critical errors. Also, make sure that those forms are duly signed, as unsigned forms are considered invalid. This will help you steer clear in case anything bad happens to an employee’s negligence.
Check The Calculations By Yourself Once Again
Since this is a one time process that every employee must go through, you can allocate some extra time to re-read those federal and state (if any) tax withholding forms and see if all the math done on those forms is accurate. The math on those forms are usually very simple and straightforward, but you can still take some time and add the numbers by yourself to see if the results are the same as those forms display.
Calculating The Net Payment
What Is The Gross Payment?
Calculating the gross income of your employee is an important thing to know when you’re trying to start the payroll process. You can calculate the gross pay easily by first calculating the number of hours worked by the employee, and then multiplying it with the hourly rate you’re paying them. For example, if an employee worked for 40 hours in a workweek, and their hourly pay rate is $20, their net income would be $800 for that particular week. Not only this, but you’ll also have to consider this when calculating the net income of an employee for a certain work period.
- Add any connections or bonuses granted to that employee during that period.
- Usually, most companies pay their employees on a monthly, weekly, or bi-weekly basis. In this case, you’ll have to add around 40 hours of work if the employee is working full time.
- If an employee is on a fixed salary, he’ll earn the same amount of money and will be getting the same paycheck every time no matter how many hours they for.
Get The Tax Tables
Federal and state tax tables are documents that’ll explain the tax that every single of your employees will own the government. These forms present the information in a very nice and easy to understand way.
You can get the federal and state income tax tables from their representative websites every year.
Apply The Taxes
Now, after all the tax information collection phases, all you have to do is actually applying those taxes and making the gross income of your employees for payroll purposes.
- Federal and state taxes: to deduct the federal tax, you’ll have to consider the factors like the gross pay, the filing states and exemptions claimed by every individual. Use the tables you got from the federal website. States taxes might be fixed for every individual, you’ll just need to follow some instructions stated on the state website to withhold a specific amount from every single one of your employees.
- Social security tax is a fixed percentage of any employee’s gross income.
- Medicare tax is also a fixed percentage.
- Other Deductions might also be applied if your employee has any.
You should now be left with the net pay.