Question

The calculation of gross and net pay can be a complicated process. Explain the items that complicate payroll calculations.​

Answer 1

To understand Overall Payroll Calculation we need to See the Payroll Process.

1. Have employees complete federal and state employee withholding forms. When starting a new job, all employees must complete a federal Employee Withholding Allowance Certificate, also known as a W-4 form.The name and structure of the state form will vary from state to state.

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. Keep in mind, the more exemptions claimed, the less that the employee has withheld from his or her paycheck. However, that employee might owe money when it comes time to pay taxes.

2. Verify that the forms are signed. Remember, those federal and state documents are not valid if they're not signed.

3. 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 earns $15 an hour, you would multiply 40 times $15 to get a gross pay of $600.

Don't forget to factor in any overtime, commissions, or bonuses awarded during the pay period.Pay periods may be weekly, bi-weekly, or monthly. If the period is bi-weekly, for instance, then a full-time employee should work about 80 hours.An employee with a fixed salary will earn the same amount no matter how many hours they work.

4. Apply federal and state income taxes. You'll use the tax tables that you've retrieved to apply the correct amount of federal and state income tax to withhold.

For federal taxes, you'll look up the withholding amount based on the employee's gross pay, filing status, and the number of exemptions claimed. Then, you'll deduct that amount from the gross pay.For states taxes, consult your state's department of revenue website for instructions about how much to withhold.

5. 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 gross pay. Employers must bear in mind that they too are responsible for paying social security taxes. The current tax rate for Social Security is 6.2% for the employee.

6. 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. Employees are currently taxed at 1.45% for Medicare.

7. Subtract other deductions. Employees may have voluntary contributions or mandatory deductions that need to be reduced from their gross pay.Examples of voluntary contributions include 401(k) contributions, deferred compensation programs, long-term disability, and flexible spending accounts.Examples of mandatory deductions include child support and alimony.

Gross Pay - ( Fedral Income Tax + Social Security Tax + Medicare Tax + Other Taxes ) = Net Pay

8. Finalize net pay. The amount remaining after these deductions are subtracted will be net pay. Go back over your calculations and make sure that you haven't make any mistakes.

In above The item or part which is complicate while payroll calculation is Calculation of Gross Pay..

In the payroll world, everything begins with gross pay. That is, all other calculations for employee pay, overtime, withholding, and deductions are based on gross pay.

Gross pay for an employee is the amount used to calculate that employees' wages (for an hourly employee) or salary (for a salaried employee. It is the total amount you as the employer owe the employee for work during one pay period. Gross pay includes regular hourly or salaried pay and it also includes any overtime paid to the employee during the pay period.

For both salaried and hourly employees, the calculation is based on an agreed-upon amount of gross pay. That is, both the employee and employer have agreed that this is the pay rate.The pay rate should be in writing and signed by both the employee an employer.

For hourly employees, that pay rate might be negotiated by a union contract. For salaried employees, that rate might be in an employment contract or just a pay letter. In each case, the gross pay rate should be agreed to and signed before the employee begins working.