How to Calculate Payroll

It is the responsibility of the employer to accurately calculate payroll for their employees. Errors can result in employees having too much or too little of their pay withheld for taxes, Social Security, Medicare and other deductions, which causes an inconvenience for them at tax time. Miscalculations can also result in the company coming under review and possibly facing penalties by government agencies, such as the Internal Revenue Service. Steps: 1. Have employees complete federal and state employee withholding forms. When starting a new job, all employees must complete a state and federal Employee Withholding Allowance Certificate, also known as a W-4 form. Information provided on Employee Withholding Allowance Certificates lets a company know how much federal and state income tax to withhold from each employee's pay based on filing status and the number of exemptions he or she claims. While employees may change their state and federal withholdings or filing status at any time, you must be sure there is enough income tax withheld throughout the year to prevent underpayment. 2. Determine the employee's gross pay. Before you can begin to calculate payroll, you must know what the employee's gross income is. This is determined by multiplying the number of hours worked in a pay period by the hourly rate. For example, if an employee works 40 hours in a pay period and make $15 an hour, you would multiply 40 times $15 to get a gross pay of $600. 3. Obtain federal and state income tax tables. Federal Income Tax tables break down the amount of federal income tax an individual owes based on the number of exemptions they claim and their filing status of single, married filing jointly, married filing separately or head of household. The Internal Revenue Service posts current tax tables online. You may find state income tax tables online by visiting your state comptroller's office website. 4. Apply Social Security tax rates. Calculating the amount of Social Security tax to pay is easy as it is a fixed percentage of an employee's earnings. Employers must bear in mind that they too are responsible for paying social security taxes. The 2009 Social Security tax rate on employee earnings is 6.2% up to $106,800, with the employer also responsible for paying 6.2% of an employee's earnings up to 106,800. The Social Security tax rate for self-employed individuals is 12.4% of their earnings up to $106,800. Self-employed individuals may benefit from income tax provisions that may reduce their social security tax contribution. 5. Deduct Medicare taxes. Like the Social Security tax, Medicare taxes are also a fixed percentage of a person's earnings. In addition, employers are also responsible for paying Medicare taxes. The 2009 Medicare tax for employees and employers is 1.45% of all earnings regardless of income. Self-employed individuals are responsible for paying 2.9% of all earnings, but may be eligible for a reduced rate if they meet income tax provisions. 6. Subtract other deductions. Employees may have voluntary contributions that need to be deducted from their gross pay. Examples of voluntary contributions include 401 or deferred compensation programs, long-term disability or flexible spending accounts. Sometimes, there are court specified deductions, such as child support or alimony. originated by: WRM, BoldStepFixer, Wendy Weaver, Monica Source: www.wikihow.com