How to calculate payroll
/The calculation of payroll involves the determination of gross pay, followed by the subtraction of deductions and payroll taxes to arrive at net pay. The calculation of payroll is a highly regimented process. This calculation should be followed meticulously, to ensure that there are no mistakes in the amount of net pay issued to employees, or taxes paid to the government. The calculation steps for payroll are described below.
Step 1. Notify Employees
Tell employees to complete their timesheets by the close of business on the last day of the payroll period. Otherwise, pursuing employees to complete their timesheets will delay the payroll. In cases where employees are on vacation, have them fill out their timesheets in advance.
Step 2. Collect Timesheets
Obtain timesheets from all employees. This information may be located in an on-line timekeeping system. An on-line system is highly recommended, since it can be used to automatically flag anomalies for managers to investigate. Remote log-in systems are also available through websites and smartphones, for those employees who work away from the office.
Step 3. Review and Approve Timesheets
Review all timesheets for completeness, and then forward them to the relevant supervisors for approval. Overtime in particular should be approved, since it is 50% more expensive than regular pay. This review should include a comparison to the list of active employees, to see if there are any “ghost employees.” These are fake employees, usually set up by someone in the accounting department who wants to fraudulently route payments to their own bank account.
Step 4. Enter Hours Worked
Enter this information if the hours worked information is collected manually. Otherwise, it may already be in the system.
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Step 5. Enter Wage Rate Changes
Enter all authorized changes into the payroll system for wage rate alterations, withholdings, and deductions. In particular, ensure that all deductions have been entered for adjustments to gross wages for tax purposes, since they impact the amount of payroll taxes paid.
Step 6. Calculate Gross Pay
Multiply wage rates by the number of hours worked to arrive at gross pay.
Step 7. Calculate Net Pay
Deduct all authorized withholdings and pay deductions from gross pay to arrive at net pay.
Step 8. Review
Print a preliminary payroll register and examine the gross pay, deductions, and net pay for each employee, to ensure that it is correct. If it is not correct, revise the prior entries and run another preliminary payroll register.
Step 9. Pay Employees
Cut paychecks and remittance advices. Also print a final payroll register and archive it. Have an authorized person sign the checks. Alternatively, issue electronic payments to employees.
Step 10. Remit Taxes
Forward all applicable payroll taxes to the government by the mandated due date.
Step 11. Distribute Pay
If paychecks were cut, retain them in the company safe and distribute them on pay day. An extra control is to require a proof of identification before handing a check to an employee.
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