How to Process Payroll

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Review Employee Benefits & Deductions

You’ll want to remember those regulations when figuring out how to process payroll. Review your employee information prior to running payroll to ensure everything is up to date. payment processing We’ve broken down the complete payroll process into seven clear steps.

Calculate Employees’ Gross Pay

Most payroll providers charge a small monthly fee ranging from $20 to $100 per month plus a per-employee payroll fee―often less than $10 per employee per pay period. After you calculate gross pay, withhold payroll taxes, and determine deductions, you can calculate your employees’ net pay. An employee’s net pay is how much they take home after taxes and deductions. Before you can calculate gross pay and payroll taxes, determine deductions, etc., collect time cards from applicable employees.

Gross pay is the total number of hours an employee works in a given pay period multiplied by their hourly rate. The first step in processing payroll is to understanding tax return preparer credentials and qualifications establish your EIN and your state and local tax ID numbers. First, you need to determine the gross wage amount for each employee, then calculate and subtract various withholdings, such as income taxes. You’ll then determine the net pay amount, pay your employees, and make tax deposits to the relevant tax agencies on time to comply with tax regulations.

1. A potential downside is that this software may be a little pricey for companies with a small number of employees.
2. Employee payroll taxes and other payroll deductions are usually the most complicated part of the payroll process.
3. The vast majority of businesses and professionals work with payroll software providers to handle all of their payroll needs.
4. This can range from an old-fashioned time clock to a spreadsheet, or an automated online timekeeping system.
5. Try asking the payroll company or service provider you’re considering these questions to determine if they’re the right fit.

Deduct Payroll Taxes

If you hire contract employees, they must fill out a W-9, which you will need in order to provide them with a 1099 at the end of the year. The Department of Labor maintains a helpful state payday law chart to help businesses stay compliant. Join the thousands of people like you already growing their businesses and knowledge with our team of experts. We deliver timely updates, interesting insights, and exclusive promos to your inbox.

If your payroll includes employee health insurance or retirement savings, you’ll need documentation showing the employee has approved additional deductions. Before you commit to one system over another, consider factors like business growth, employee benefits, and the complexity of your state’s payroll taxes and laws. Depending on your business and if your employees are salaried or hourly, you may have some or all employees clock in and out and record their information on a timesheet. For hourly employees, you need this information to calculate hours worked and pay them properly. And, you may need to do the same with salaried employees, especially if they’re nonexempt.

The three stages of payroll processing are data collection, calculation, and disbursement. In the data collection stage, employers gather information such as employee details, hours worked, and any deductions or withholdings. This information helps with the calculation stage, where tax withholdings, overtime wages, and other variables determine the liabilities in accounting net payment amount. In the disbursement stage, you make payments to employees through methods such as direct deposit or paper checks. To do payroll manually, you’ll need to calculate your employee’s gross pay and subtract the proper deductions and withholdings in order to prepare a proper paystub and paycheck.

Or if you’d rather, you can work with a payroll company instead of an individual CPA. A payroll software service is a great addition to any company, but it can only take you so far. When selecting the best payroll provider for your needs, it’s important to consider ease of use, integrations, customer support, and bonus features.