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Payroll: Company Financial Salaries Wages Deductions

Payroll involves accurately paying employees their salaries and deducting taxes on a regular basis, as required by law. It is crucial for accounting purposes and employee morale. The payroll department's primary mission is to ensure employees are paid correctly and on time with the proper withholdings. Payroll taxes include federal and state income taxes, Social Security and Medicare taxes, which are paid by both the employee and employer. Companies typically generate payroll on a weekly, bi-weekly, semi-monthly or monthly basis. Businesses may outsource payroll to reduce costs and ensure compliance with increasingly complex tax regulations.

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126 views

Payroll: Company Financial Salaries Wages Deductions

Payroll involves accurately paying employees their salaries and deducting taxes on a regular basis, as required by law. It is crucial for accounting purposes and employee morale. The payroll department's primary mission is to ensure employees are paid correctly and on time with the proper withholdings. Payroll taxes include federal and state income taxes, Social Security and Medicare taxes, which are paid by both the employee and employer. Companies typically generate payroll on a weekly, bi-weekly, semi-monthly or monthly basis. Businesses may outsource payroll to reduce costs and ensure compliance with increasingly complex tax regulations.

Uploaded by

Kavita
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Payroll

Handling payroll typically involves sending out payslips to employees.

In a company, payroll is the sum of all financial records of salaries for an


employee, wages, bonuses and deductions. In accounting, payroll refers to the
amount paid to employees for services they provided during a certain period of
time. Payroll plays a major role in a company for several reasons.

From an accounting perspective, payroll is crucial because payroll and payroll


taxes considerably affect the net income of most companies and they are subject
to laws and regulations (e.g. in the US payroll is subject to federal, state and local
regulations). From an ethics in business viewpoint payroll is a critical department
as employees are responsive to payroll errors and irregularities: good employee
morale requires payroll to be paid timely and accurately. The primary mission of
the payroll department is to ensure that all employees are paid accurately and
timely with the correct withholdings and deductions, and to ensure the
withholdings and deductions are remitted in a timely manner. This includes salary
payments, tax withholdings, and deductions from a paycheck.

Contents

[hide]

 1 Payroll taxes
 1.1 Payroll taxes in United States.
 2 Frequency
 3 Outsourcing
 4 Footnotes
 5 References
 6 External links
Payroll taxes[edit]
Government agencies at various levels require employers to withhold income
taxes from employees' wages.

In the United States, "payroll taxes" are separate from income taxes, although
they are levied on employers in proportion to salary; the programs they fund
include Social Security, andMedicare. U.S. income and payroll taxes collected
through deductions are considered to be trust fund taxes, because the employer
holds the deducted money in trust for later remittance.

Payroll taxes in United States.[edit]


Before considering the payroll taxes we need to talk about the basic formula for
the Net Pay. From gross pay (the salary paid to the employee) one or more
deductions are subtracted, to arrive at Net Pay. Thus the employee's gross pay
(pay rate times number of hours worked, including any overtime) minus payroll
tax deductions, minus voluntary payroll deductions, is equal to Net Pay. Payroll tax
deductions play a critical role and because they are provided by law they are
known as Statutory payroll tax deductions.

The employer must withhold payroll taxes from an employee's check and hand
them over to several tax agencies by law. Payroll taxes include the following:

1. Federal income tax withholding, based on withholding tables in "Publication 15,


Employer's Tax Guide"[1] by Internal Revenue Service - IRS;
2. Social Security tax withholding.[2] The employee pays 6.2 percent of the salary or
wage, up to 121,125 (as of 2009). The employer also pays 6.2 percent in Social
Security taxes. If you are self-employed, you pay the combined employee and
employer amount of 12.4 percent in Social Security taxes on your net earnings;
3. Medicare tax.[3] The employee pays 1.45 percent in Medicare taxes on the entire
salary or wage. The employer also pays 1.45 percent in Medicare taxes. If you are
self-employed, you pay the combined employee and employer amount of 2.9
percent in Medicare taxes on your net earnings;
4. State income tax withholding;
5. various local tax withholding, such as city taxes, county taxes, school taxes, state
disability, and unemployment insurance.
References include the following publications:
 Publication 15, (Circular E), Employer's Tax Guide. This publication explains
employer's tax responsibilities. It explains the requirements for withholding,
depositing, reporting, paying, and correcting employment taxes. It explains the
forms any employer must give to its employees, those employees must give to
the employer, and those employer must send to the IRS and SSA (Social Security
Administration). This guide also has tax tables needed to figure the taxes to
withhold from each employee;
 Publication 15 - A, Employer’s Supplemental Tax Guide. This publication
supplements Publication 15 (Circular E), Employer’s Tax Guide. It contains
specialized and detailed employment tax information supplementing the basic
information provided in Publication 15 (Circular E);
 Publication 15-B. Employer's Tax Guide to Fringe Benefits. This publication
supplements Publication 15 (Circular E), Employer’s Tax Guide, and Publication 15
- A, Employer’s Supplemental Tax Guide. This publication contains information
about the employment tax treatment of various types of noncash compensation.
In the earlier part we have considered payroll taxes related to employee's side.
Now it's the moment to talk about the Employer Payroll Taxes Employers are
responsible for paying their portion of payroll taxes. These payroll taxes are an
expense over and above the expense of an employee's gross pay. The employer-
portion of payroll taxes include the following:

1. Social Security taxes (6.2% up to the annual maximum);


2. Medicare taxes (1.45% of wages);
3. Federal unemployment taxes (FUTA);
4. State unemployment taxes (SUTA).
Very often you can hear people using FICA in their terminology. FICA stands for the
Federal Insurance Contributions Act and the FICA tax consists of both Social
Security and Medicare taxes. As we explained earlier both parties pay half of
these taxes. Employees pay half, and employers pay the other half. Social
Security and Medicare taxes are paid both by the employees and the employers.
In summary together both halves of the FICA taxes add up to 15.3 percent.
Any employer is responsible for paying the employer's share of payroll taxes, for
depositing tax withheld from the employees' paychecks, preparing various
reconciliation reports, accounting for the payroll expense through their financial
reporting, and filing payroll tax returns. As you see this suite of employer payroll
tax responsibilities is far above issuing paychecks to employees.

Frequency[edit]
Companies typically generate their payrolls at regular intervals, for the benefit of
regular income to their employees. The regularity of the intervals varies from
company to company, and sometimes between job grades within a given
company. Common payroll frequencies include: daily, weekly, bi-
weekly/fortnightly (once every two weeks), semi-monthly (twice per month), and
monthly. Less common payroll frequencies include: 4-weekly (13 times per year),
bi-monthly (once every two months), quarterly (once every 13 weeks), semi-
annually (twice per year), and annually (yearly).

Outsourcing[edit]
Businesses may decide to outsource their payroll functions to an outsourcing
service like a Payroll service bureau or a fully managed payroll service. These can
normally reduce the costs involved in having payroll trained employees in-house
as well as the costs of systems and software needed to process a payroll. Where
this may reduce the cost for some companies many will foot a bigger bill to
outsource their payroll if they have a special designed payroll program or payouts
for their employees.[citation needed] In many countries, business payrolls are
complicated in that taxes must be filed consistently and accurately to applicable
regulatory agencies. Restaurant payrolls which typically include tip calculations,
deductions, garnishments and other variables, can be difficult to manage
especially for new or small business owners.
In the UK, payroll bureaus will deal with all HM Revenue & Customs inquiries and
deal with employee's queries. Payroll bureaus also produce reports for the
businesses' account department and payslips for the employees and can also
make the payments to the employees if required.
Another reason many businesses outsource is because of the ever increasing
complexity of payroll legislation. Annual changes in tax codes, Pay as you
earn (PAYE) and National Insurancebands as well as statutory payments and
deductions having to go through the payroll often mean there is a lot to keep
abreast of in order to maintain compliance with the current legislation.

On the other hand, businesses may also decide to utilize payroll software to
supplement the efforts of a payroll accountant or office instead of hiring more
payroll specialists and outsourcing a payroll company. Payroll software base its
calculation on entered rate, approved data obtained from other integrated tools
like the electronic Bundy clock, and other essential digital HR tools.

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