How Payroll Calculation Works?

How Payroll Calculation works? Employers pay employees for the work they do. It is the responsibility of employers to make sure that the employees get paid. Employee’s payroll can be handled in different ways like outsourcing it, manually or through a computerized system. The person who is employed to calculate payroll has completed payroll courses for gaining the required skills and knowledge. Calculation of payroll is a complicated process and it differs from company to company. Each company can have its own process of calculating payroll. Additionally, many laws specific to the location like minimum wages act, labor welfare cat and payment of salaries and wages act affect the calculation of payroll. According to the minimum wages act, employers are bound to give employees some parts of salary like – basic salary, DA and HRA. Regardless of the process used in the company, there are some general principles apply while calculating payroll. Payroll calculation for an hourly worker Generally, hourly workers are paid according to the hours worked by workers in a week. A time card or timesheet is maintained for each worker for the recording of hours worked in a week. For instance, a worker is paid Rs.80 per hour. The timecard of the worker shows work of 40 hours in a week. So, he will get 40 hours X 80 per hour = Rs.3200 (gross pay). Payroll calculation for salaried employee Salaried employees are usually paid at a fixed rate at a fixed period. Normally, salaried employees do not come under the overtime pay. For the calculation of payroll of salaried employees, divide the yearly salary of the employee by total payment period. For instance, if an employee earns Rs.240000 paid monthly then the monthly payment will be Rs.240000 divided by 12 monthly payment period = Rs.20000. Subtraction of statutory deductions Statutory deductions are subtracted from the gross payment. Statutory deductions include taxes like social Medicare tax, security tax, and federal income tax. If income tax is also charged in the state than include that also. Payroll software is used to calculate tax or you can calculate it manually. If you prefer to do it manually, you can check with the employer’s tax guide for the determination of taxes applicable, forms and their rates. Likewise, you can check with state income tax authority for income tax form and rates. Subtract Voluntary Deductions After subtractions of statutory deductions, voluntary deductions are subtracted. Voluntary deductions include retirement benefits, disability dental, medical and life insurance and parking fees. The amount of deductions varies by the company’s plan and type of deductions. Deposit of deductions Deductions subtracted from the employee’s gross income should be deposited with the right government organization. In some cases, like wage garnishment payment or child support deductions, the company will be informed about the deposit process of the deductions by the authority which is responsible for collecting these deductions. Direct deposit or issuing of checks Employees are paid their wages through direct deposit or through the issue of a paper check. Issuing of a paper check to the employees is uncomplicated, but it is important to make sure that the information on the paper check is correct. A direct deposit of wages is also an option. You can ask employees to provide information about their bank account. Your bank or your payroll processor can provide the facility of direct payment from the company’s payroll account to an employee’s personal account.

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