9 STEPS ON HOW TO PROCESS A PAYROLL Employees do want to be paid, paid accurately, and paid on time. Making sure all of these points are followed require effective payroll management. The proper way to manage a payroll entails organization and an orderly process. Following these nine steps can greatly aid in making sure payroll processing can be better and more effectively managed. 1.) Log every bit of information related to employee wages and compensation The information can include how many hours the employees worked, their base salary amount, their overtime amount, tips, and more. Good accounting practices and equally good software can help you compile very accurate records. 2.) Add up the gross pay for the employee Logging the information individually is necessary, but you also have to take the step to add up the amounts. 3.) Be sure all tax information and documents are logged Whether you are paying someone via a 1099 or a W-2, you must have all the necessary tax filing documents in place. The W-4, in particular, is necessary to take out the required tax withholding. 4.) Figure out the amount of the withholding you must take out Estimates are not going to be acceptable here. You have to use the necessary IRS form in order to properly figure how much money to remove from the employee's pay. 5.) Assess the amount to withhold for social security In addition to directing money to the IRS to cover income tax, money has to be taken out to be directed towards future social security insurance payments. As with tax withholding, this figure has to be completely accurate. Errors can lead to fines or other problems. The tax rate is 6.2% and is capped at $106,800. 6.) Figure out the amount to withhold for Medicare Accuracy is a must once again. The percentage amount that must be taken out of pay is 1.45%. Unlike social security insurance, there is no income cap on Medicare tax. 7.) Perform the accounting for all the local taxes Local taxes refer to those applicable taxes that go towards the state and, possibly, the city or town. The amount (percentage) of the local taxes is obviously going to vary based upon the actual location where the business is located. Staying up to date on all local tax rates is a must in order to avoid costly errors. Of course, this same logic applies to federal taxes as well. 8.) Make any necessary further deductions from the payroll
The additional deductions can be quite vast. They can include health insurance deductions, 401(k) plans, savings plans, wages that were advanced and even tax garnishments. 9.) Process the actual payroll This is the last and final step. The old, manual method of writing out checks by hand is still done by many. Others have their accountant handle such tasks. Modern computer software can be employed to perform the work as well. Regardless of the method utilized, sending out payments on time is a must. One last bit of advice about payroll management should be mentioned here. None of these steps are all that complicated, but they must be performed deliberately and with careful attention to detail.