The purpose of payroll is to correctly pay employees on time and in accordance with all regulations set up by the government. This procedure consist of the following steps:
- Calculating hours worked and gross pay
- Process payroll deductions and withholdings
- Calculate net pay
- Distribute payment
- File tax reports
- Document and store payroll records
Let’s look more closely at each step in the payroll process.
Calculating hours worked and gross pay
First, the total number of hours worked by each employee must be calculated and multiplied by the individual’s pay rate.
Process payroll deductions and withholdings
Once gross pay has been calculated, payroll deductions must be subtracted. These include:
- Pretax deductions, including health insurance and retirement contributions
- Income tax withholding (Federal, state and local)
- Post taxation deductions, like for court-ordered garnishments of wages or certificate of deposit retirement plans (Roth IRAs)
Calculate net pay
Net earnings are obtained by deducting all withholdings and deductions from gross wages.
Distribute payment
There is an option to pay employees with check or direct deposit. Note: Some state laws require direct deposit.
File tax reports
Then there are payroll tax deposits, which must be paid and record kept for federal, state and local governments.
Document and store payroll records
It is a requirement to ensure that detailed and organized records of all relevant payroll information is securely kept for specific duration as required by the federal Fair Labor Standards Act (FLSA), and state laws.
