What is Payroll? Find Out with Simplified Payroll and Bookkeeping
A payroll is a compensation that a firm or a business usually offers employees at a certain period or a particular date of a month. Its management is done by the department of human resources or account of the firm. In most cases, the small business owners handle their payroll without any experts.
Ideally, these payrolls are mainly outsourced to certain companies that manage employee benefits, paycheck processing, accounting operations, etc. Several payroll firms include Bitwage, Wagestream, Atomic, Finch, and Pinwheel. They are working towards using better technology for more convenient payroll operations. This makes it easier and simpler to pay employees without taking much time. Moreover, it offers them any related documents needed using technology that suits their needs better.
Also, payroll is referred to as the list of employees in the company and the amount that each of them needs to be compensated at a certain period. Most businesses have this as an expense; therefore, it will be deducted from the gross income. This will lower the total taxable income of the firm. Several factors bring about the difference in payroll from time to time. This includes sick pay, overtime, and more.
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What is Payroll and How to Understand Payroll
Payroll involves the entire process of making payments to the employees, checking on the working hours, calculating each employee’s pay, and distributing them through direct deposits, cheques, bank accounts, and so on. The firm needs to conduct accounting tasks to develop payrolls, overtime pay, vacation pay, taxes withheld, and bonuses. Moreover, the firms should record the taxes paid to the government for different reasons. For easier management of the payroll, most companies will use software solutions. Here, the employee enters their working hours using API, where their pay is processed and deposited to their banks directly.
Other large and medium-sized companies usually outsource these payroll services from other companies for more convenient operations. This makes it easier for the employers to track the working hours of each employee before they can make any submissions to the payroll services. Before you can receive your payments, all the taxes are deducted and any other withholdings. During the payday, this will calculate the gross amount of each employee depending on the worked hours during a particular pay rate or pay period.
Employers who make gross sales of $500000 or more are usually subjected to the requirements of FLSA, which was passed back in 1938. This law protects the employees or workers from any bad pay or unfair practices of the company. It contains many regulations such as minimum wages, working time, child labor limitations, what you need for overtime pay, etc.
It brings out when an employee needs to be paid overtime. Also, it reiterates that overtime is any time that is worked more than 40 hours in a week. This is to be paid at least one and half times the hourly rate. On the other hand, this law does not apply to other workers such as volunteers or independent contractors because they are not part of the employees.
Furthermore, some workers are subjected to the regulations of this law but are not covered here. This includes the rail workers, who the Railway Labor Act governs, while truck drivers fall under Motor Carrier Act.23. Also, this law brings out how you need to treat a job that needs tipping. Each time you tip your service workers, the employer must pay a minimum wage to employees only when they regularly get more than $30 in a month.
Pros and Cons of Using Professional Payroll Services
What is a payroll service benefit? Payroll services have different benefits. For example, it offers various reports that make accounting processes more convenient. Also, you can easily comply with any tax and legal requirements of the country as a company. These services allow you to record any personal or vacation time spent by employees.
The disadvantage of payroll services is that when a firm outsources a payroll system, you rely primarily on other individuals to offer you accurate records and payment systems. This can result in unsatisfied employees in case an error occurs. Moreover, the firms can encounter tax penalties because of some mistakes in the payroll system.
Payroll services can also be expensive, unlike the payroll in-house. This service can charge a monthly fee or other payments that will vary depending on your services. Therefore, payroll services may not be a good choice for those smaller firms with a tighter budget.
In most cases, as a business expands its operations, the accounting options tend to grow and get more complex. The larger companies can invest in custom enterprise resource planning (ERP) systems for more accessible payroll services and accounting operations.
Advantages of professional payroll services:
· Allows you to access a wide range of reports
· Offers you more straightforward tax compliance and accounting options
· Makes it easier to record personal and vacation time spent by employees
Disadvantages of professional payroll services:
· Can cause payroll problems among the internal staff and employees
· Persons outside the firm do not acquire tax and financial information
· Errors in payroll services make companies face penalties
· More primarily expensive for small and growing businesses
What is a Payroll Software Program?
Payroll is a necessity for any business—you have to pay your employees, make the right tax deductions and then get everything paid and filed on time. This is a big task for small business owners and it isn’t how you should be spending your time. Simplified Payroll and Bookkeeping offers a software to run your payroll.
Accounting software offers smaller business owners different benefits because it makes it more convenient to monitor profits, account payables, and account receivables and get ready for any upcoming taxes. Smaller businesses can easily use out-of-the-basic software that does not require extensive customizations.
As a company expands its operations, its accounting also grows and becomes more complex as time goes by. You will need a custom enterprise resource planning system to ease its operations here. There is a wide range of cloud-based accounting software that is well designed to suit the needs of smaller businesses. Several factors will affect the type of accounting you need for your firm. This includes the number of employees and kind of industry.
Get Relief From Your Payroll Responsibilities:
Now you know what payroll is, and if you don’t have the time, talents, or tools to handle your operation’s payroll duties, call Simplified Payroll and Bookkeeping at 737-931-1413.
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Payroll Tax Cut
The payroll, such as social security, usually deducts 6.2% of your income to $132900. These taxes also cater to Medicare which deducts up to 1.45% of your gross income. Not only do employees pay payroll taxes, but also employers. They must pay up to 6.2% of their total income, with the government getting about 12.4% of the revenue. Also, the employer gets to pay 1.45% of the total income for Medicare.
The payroll tax cut shows you that fewer Medicare and social security taxes are withheld to be deducted from the paychecks. Here, businesses and workers would take more money from every paycheck. This would make them spend more, therefore, enhancing the economy.
Payroll Tax Holiday
The pay tax holiday aims to provide relief to the workers for a certain period. It refers to the discontinuation of the taxes up to a certain period until they will have expired. In that, it increases the takeaway of salary in the long run.
How Do We Calculate Payroll Tax?
Calculating payroll taxes differs from one firm to another, depending on the type of business carried. Though, there are guidebooks that guide one on how to go about it. Before calculating the tax payable, first, you should do the math on the employee’s total earnings; that’s the gross pay.
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1. How do we calculate the gross pay?
It’s an easy task; first, you have to determine the pay rate and then multiply it by the overall time taken; for instance, some pay is for monthly, weekly, or hourly if short term contract. To calculate wage for hourly, you take the rate of an hour multiplied by the total hours taken for that work.
Rate by hour X total hours one took during the entire pay period = gross pay.
If you want to calculate an individual’s gross, take the gross pay of a year and then divide it by the total number of the payment period, which can be monthly.
The formula below is commonly used:
Annual salary divided by the payment period in annual= gross pay
For instance, An employee makes a total of $50,000 annually. He will receive payments every two weeks for 26 pay periods. This will make him receive a gross pay of $1923.08.
· Deduct the pre-tax deductions
After calculating the gross, you need to remove any deductions. These are mostly the tax deductions, but they can also include the pre-tax deductions. These pre-tax deductions include health insurance plans, life insurance plans, flexible spending account contributions, etc.
· Take out taxes( unemployment, FICA, and income taxes)
After deducting the pre-tax deductions, the amount remaining is to be taxed. Using the FICA tax rate will remove 7.65%-1.45% for Medicare and social security taxes at 6.2%. State or federal laws determine any other of these taxes. You can use IRS tax tables to get federal income tax.
Mostly, you will incur these federal taxes whenever you pay medicare and social security taxes. From here, you need to deduct 7.65% FICA tax from the gross income. This requires you as an employer to match the contribution of each employee. Both the business and employees need to contribute to Medicare and Social security.
An example is where an employee earns $ 1800 gross income during the last pay period. You can get a Social Security tax contribution by multiplying $1800 by .062, which gives you $111.6. For the Medicare tax, you need to multiply $1800 by .0145, which is $26.1. The total FICA tax contribution becomes $137.7, which requires the employer to match this.
Therefore, the employer needs to pay $275.4 to the IRS. Half becomes the company’s direct expense, while the other half is withheld from the employees’ paychecks. Employers must pay federal unemployment taxes since they do not match any income tax deductions. To know the amount of taxes your employees owe you, you can use the IRS Income Withholding Assistant.
· Voluntary deductions
After all this, you can take out any voluntary deductions from the remaining wage. This includes life insurance plans, union dues, wage garnishments, etc. You can take home the remaining amount with all these deductions and taxes.
Conclusion on What Payroll Is
It can take much time and effort to process payroll because it requires you to be vigilant and adhere to most state and federal regulations. You need to keep records while paying attention to most of the details. Smaller and growing businesses use cloud-based software to handle their payroll services. Large firms can outsource these services by simply investing in an ERP system. This makes payroll operations more convenient.
However, you can also use our payroll software for small businesses. Find out more information here.
If you don’t have the time, talents, or tools to handle your operation’s payroll duties, call Simplified Payroll and Bookkeeping at 737-931-1413.