Question

write a two-page paper explaining the key elements of gross pay, net pay, and payroll deductions, preparing a payroll register, maintaining employee earnings records, and paying payroll and depositing taxes.

Answer 1

Gross pay is the total amount of money designated for a particular employee or for all employees in the business, depending on how the term is being used. The goal is to provide a maximum figure that can be easily examined by managers, payroll employees and analysts.

Elements

Gross payroll is made out of several elements. The major component is the main form of compensation, given in either a wage or a salary. But many employees also receive money from bonuses, overtime, pay for time off and time sick and payment allowances for tools and services they need to buy. The number must also include any type of value the employee has received, such as that of meals or employee discounts. Then the company considers taxes, retirement plan contributions and similar factors.

Net pay is the amount of pay remaining for issuance to an employee after deductions have been taken from the individual's gross pay. This is the amount paid to each employee on pay day. Thus, the net pay calculation is:

Gross pay - Payroll taxes - Other deductions = Net pay

The key elements of the net pay calculation are:

1. Gross pay. This can be the total amount of wages and overtime earned, or the total amount of salaried compensation. It may also include other forms of compensation, such as commissions and bonuses.
2. Payroll taxes (deduction from gross pay). This is the government-mandated amounts of payroll taxes to be deducted from employee pay and forwarded by the employer to the government. Typical payroll taxes are the social security tax and Medicare tax.
3. Other deductions (deduction from gross pay). There are a large number of possible deductions that a company can make from employee pay, usually to pay for benefits, garnishments, or the repayment of loans. Examples of these other deductions are:
   1. Garnishment for spousal support
   2. Garnishment for child support
   3. Garnishment for unpaid taxes
   4. Garnishment for unpaid debts
   5. Employee-paid portion of medical insurance
   6. Employee-paid portion of life insurance
   7. Employee-paid portion of dental insurance
   8. Employee pay back to company of advances
   9. Employee pay back to company for goods purchased on behalf of the employee
   10. Deduction for stock purchase plan
   11. Deduction for 401(k) or similar pension plan
   12. Deduction for trade union dues
   13. Deduction for charitable causes

The derivation of gross pay, as well as all deductions, are included in the remittance advice that accompanies a payment to an employee, so the employee can see how his or her net pay figure was calculated.

Net pay is also known as take home pay.