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 point of view, 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 and state regulations). From 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.

Payroll taxes

Government agencies at various levels require employers to withhold income taxes from employees' wages.[1]

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, and Medicare. 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 U.S.

Before considering the payroll taxes we need to talk about the Basic Formula for the Net Pay. Basically from gross pay is subtracted one or more deductions to arrive at the Net

Pay. In fact Employee's gross pay (pay rate times number of hours worked, including any over time) minus payroll tax deductions, minus voluntary payroll deductions, is equal

to Net Pay. As you can see payroll tax deductions play a critical role and just because they are provided by law we can call them 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:

Federal income tax withholding, based on withholding tables in "Publication 15, Employer's Tax Guide"[2] by Internal Revenue Service - IRS;
1.
Social Security tax withholding.[3] The employee pays 6.2 percent of the salary or wage, up to 106,800. The employer also pays 6.2 percent in Social Security
2.
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;

Medicare tax.[4] 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
3.
are self-employed, you pay the combined employee and employer amount of 2.9 percent in Medicare taxes on your net earnings;

State income tax withholding;

4.
various local tax withholding, such as city taxes, county taxes, school taxes, state disability, and unemployment insurance.
5.
As for the sources considered as references we can mention 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:

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

1.
Medicare taxes (1.45% of wages);
2.
Federal unemployment taxes (FUTA);
3.
State unemployment taxes (SUTA).
4.
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.

Payroll Frequencies

Companies typically generate their payrolls on regular intervals, for the benefit of regular income to their employees. The regularity of the intervals, though, varies from

company to company, and sometimes between job grades within a given company. Common payroll frequencies include: daily, weekly, bi-weekly (once every two weeks),

semi-monthly (twice per month), and to somewhat of a lesser extent, 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.

Payroll Outsourcing

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. 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 Insurance bands 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.

Payrolling

Payrolling is the business practice of referring a contingent worker to a staffing vendor or payrolling provider so that they are the employer of record responsible for employer

taxes, payroll, and all legal matters pertaining to employing workers. Different from sourcing (or recruiting) where the staffing vendor uses internal recruiters to locate

contractors on behalf of the requesting company or client, payrolled workers are identified by the client.[not specific enough to  verify]

Often payrolled workers are known to the client from previous engagements or as former employees. Because the costs of recruiting workers in to contract positions are

eliminated the payrollees are often processed at reduced mark up rates.

In the last several years, some dedicated payrolling companies have emerged in the staffing industry to provide payrolling services. In the US they are known as Professional

Employee Organizations or PEO's. They charge the cost of the employee payroll and add a surchage for their services.

A payroll service bureau is an accounting business whose main focus is the preparation of payroll for other businesses. Such firms are often run

by Certified Public Accountants, though a typical payroll processing company will refer to itself as a service bureau rather than a CPA firm, to distinguish

its payroll services from the general tax and accounting services that are generally not offered by a payroll service bureau. The typical client of a service

bureau is a small business - one just large enough for payroll to be complicated to the point of a hassle, but one still small enough to not merit its own

full-time payroll department.

The tasks that can generally be expected of just about all payroll service bureaus are as follows:

 Printing of employee pay checks on time for payday

 Direct deposit of pay into employee bank accounts, when desired

 Appropriate calculation and withholding of federal, state, and local taxes

 Calculation of payroll taxes to be paid by employer (such as Social Security and Medicare in the US)

 Filing of quarterly and annual payroll reports

 Depositing of withheld amounts with tax authorities

 Printing and filing of year-end employee tax documents such as Form W-2.

Additional services may be offered and vary from firm to firm.

 Management of retirement and savings plans

 Health benefits or "cafeteria" plans

 Timekeeping, either online or in the physical form of "time clocks"

 Producing export files containing payroll/general ledger data to be imported into a client's accounting software

 Human Resources (HR) tracking/reporting

 Workers' Compensation Insurance intermediary

In the United States, it is usual and customary that any penalties or liabilities incurred by a service bureau's mistakes are borne by the service bureau. In

practice, they are more successful at having penalties and other fees abated than most other businesses, mainly because tax authorities have a stake in

the success and longevity of service bureaus simply because they make the tax man's job easier.

There are several ways a service bureau can move money from the client to the people whom the client must pay. The simplest way is when a service

bureau prints checks on blank check stock, printing the client's account number in MICR digits at the bottom of the check, resulting in the funds being

drawn directly from the client when the check is cashed. Other bureaus initiate automated clearing house (ACH) transactions from the client, and remit

payment either electronically or in the form of paper checks against the service bureau's holding account. Because payroll transactions can be

enormous (thousands to hundreds of thousands per pay period per client), service bureaus often consider the interest earned ("float") on those amounts

in the interim to be a substantial source of revenue. The interim is the period of time between when the funds are collected from the employer (client),

and either when the paper checks are cashed, or when electronic payments (in the case of taxes) become due on their due dates.
There is lots of interpretation on the salary calculations, in the above case, if the payroll is run for the no. of days in the month, the
following illustration will be found to incorrect. 

for eg. One month salary for Mr.X is 6000 (Basic - 4000 + DA 2000) 
The salary for 31days in Jan will be 6000 (6000/31*31days), his PF will be 6000/31*31 X 12% = 720 (i.e. per day PF will be 23.23)  
But in the month of Feb his salary will be 6000 (6000/28*28days attended), his PF will be 6000/28*28x12% = 720. (i.e. per day PF
will be 25.71) 

Now check the PF contribution of Jan & Feb, the PF wages is increased. If the salary is fixed, the PF contribution should also be same.
This difference will create a lot of problem in PF inspection. 

So, as stated by The Industrial Employment (Standing Orders) Act, 1946 (Ref. model Standing Order) the salary should be
calculated on 30days for Monthly rated employee and 26days for daily rated employee, to maintain the constant PF deductions & LOP
of an employee. 

Standard Pay Calculation

Hourly Rate =Annualized Pay / 2080* 
Biweekly rate = Annualized Pay / 26*

*For years with 26 pay periods. Some years will have 27 pay periods. 

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Overtime Pay Calculation

Overtime Pay (in accordance with the Fair Labor Standards Act) =

[(Reg Hrs x Hourly rate) + (OT Hrs x Hourly rate) + (Premium Pay) ] / [Reg Hrs + OT Hrs] = FLSA Rate

(OT Hrs x Hourly rate) + (OT Hrs x .5 x FLSA Rate) = OT Earnings

* Currently, the University of Kansas allows one overtime rates at one at time-and-a-half (1.5- OTP)

Overtime pay must be calculated separately for each standardized work period.

Non-exempt employees who are employed on multiple positions and whose total hours worked exceed the FLSA limit during the
work period are eligible for overtime that must be recorded as Overtime-Multiple Positions (OTM). The agency/agencies involved
will need to calculate the overtime and enter the flat amount and the associated hours on the time sheet.

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Holiday Pay Calculation

Holiday pay = Hourly rate X holiday hours X holiday rate* 
The holiday rate is either 1.0 for paid holidays or1.5 if the holiday is worked.