Employee Payroll

Setting up your employee payroll for the first time can be a lot of work. When it's done right, your employee payroll can be done quickly every pay period. If you get a good payroll software to assist you, the most time you'll ever take on it is when you set up the program and go through entering each employee into its data base. Even if you are doing your employee payroll by hand, the same information needs to be gathered so payroll can be simplified for you and your staff. So what is the information needed to do employee payroll? The list below is a start then each business will need information that is unique to them.

1. W-4 Information
2. Pay Type
3. Pay Period
4. Paid Holidays, Vacation, and Sick Days
5. Benefits and Retirement

All of the information listed above will affect your employee payroll and each individual paycheck. Let's take a look at why.

W-4 Information

When an employee is hired one of the first things to be filled out is their W-4. The W-4 information help determine how many allowances an employee can claim to lessen the amount of federal and state income tax you must deduct from their paychecks. The more allowances an employee claims, the less taxable income an employee has and the less federal and state income tax they have to pay.

Allowances can include claiming themselves if no one else can claim them as a dependant, claiming that they are single with only one job, or married with only one job and their spouse does not work, or if they have two jobs, or their spouse works and the total wages of the second job and/or their spouses job is $1500 or less. They can also claim allowances for their spouse and any children they may have. Another allowance is if they are filing as Head of Household on their taxes. There are several other allowances employees can claim depending on if they itemize their tax return or not. If they do, it would be best for them to fill out the worksheet on page two of the W-4.

The W-4 also holds information such as the employee's full legal name, address, and social security number, as well as marital status. Employees can also choose to have more money, a specific amount, withheld from their paychecks if, for example they have a second job they would like to have monies withheld on. It also has a section where they can claim to be exempt from federal income tax, which should only be the case if they are making less than $800 per year. The W-4 form should be signed and dated, as well as updated on a yearly basis or if the employee has a life changing event. Life changing events are events such as marriage, a birth or death in the immediate family, divorce, etc.

All the information contained in the W-4 is needed for employee payroll and will help in determining federal withholdings and personal information.

Pay Type

The next information you will need for each employee is their pay type, whether they are paid hourly, salary, commission, by the contract, or any other way feasible. You may have several ways to pay employees, and each has to be gathered and kept straight so your employees are paid correctly.

Hourly wage is the most common way to pay employees in "blue collar" type work such as production, answering phones, etc. A full time employee works forty hours a week, and anything over forty is considered overtime and must, by labor laws, be paid as time and a half. Time and a half is paying the employee for an hour and a half of work for every hour over forty they work. Some companies have a higher rate for overtime such as double time, where the employees are paid for two hours for every hour over forty worked, but the law only requires time and a half.

Salary is perhaps the easiest way to pay an employee as the only calculation involved is on the first pay check, then they are paid the same thing every pay period. Salary is determined by the yearly income, for example $50,000 per year, divided by the number of pay periods, say twenty-six bi-weekly pay periods. The employee is then paid that amount, so in the former example the employee would be paid $1,923.08 before taxes per pay period and would receive the total $50,000 over time. Salary employees may or may not be protected by overtime laws, depending on their compensation and position in the company. The overtime laws are set up to protect your employees from abuse, but law makers don't really care if you abuse your own time, so executives, owners, and others who are well compensated and set their own schedule are not protected by overtime laws, though your company may determine to pay them overtime anyway. To determine whether someone in your company is protected by overtime laws or not, contact the Department of Labor.

Commission is most commonly used in sales type jobs, but can be used elsewhere as well. It is paying the employee per sale or unit. Typically an employee who is paid commission will be paid a percentage of the total of the sale they have made. Commission can be a good basis to work off of as your employees determine how much they are paid by how much they sale, thus upping production, but it can also encourage aggression and unethical or rude sales tactics.

When you pay persons by the contract, they are not typically classified as employees, but they will still be recorded in your employee payroll. Contract jobs are paid when the work contracted for is done, not on a pay period like regular employees.

Pay Period

Before you start your employee payroll, the pay period must be determined. Pay periods can be a length of time anywhere from daily to annually. Each pay period has advantages and disadvantages, so choose one that fits your business needs.

The most common pay periods which we'll discuss are bi-monthly and bi-weekly. Bi-monthly is where payday falls twice a month, typically the 15th and 30th. Bi-monthly has its advantages as your employees know exactly what date they are being paid all year long and can set up their bills accordingly, and it gives you less paydays to worry about than bi-weekly. If you choose a bi-monthly pay period your employees will receive 23 paychecks throughout the year. The downside to bi-monthly is that the 15th and 30th or whatever days you choose to pay your employees, don't always fall on the same day of the week, thus not allowing your payroll to really set up a weekly schedule. This can be frustrating to organized minds. A bi-monthly pay period is kind to your employee's lives in ways, but difficult for your payroll in other ways.

A bi-weekly pay period provides payday to fall every other Friday. This means there are twenty-six paydays throughout the year. That's only three more paydays to deal with for your payroll staff, and the payoff is that it can be better organized around. This might, however, present problems for your employees in that payday doesn't fall on the same date every month, so bills are a little harder to organize for. They should be happy however, because they are paid more often.

Paid Holidays, Vacation, and Sick Days

The next information, which is most often determined by the pay type, is the number of paid holidays, paid vacation time, and sick days per employee. If your employees are paid commission, they are more likely to not get any paid holidays. If your employees are paid hourly, they will more than likely get paid holidays, or be paid time and a half or more if they work the holidays. A list of paid holidays should be generated and given to all employees at the beginning of the year. Also keep in mind that several businesses award their employees with floating holidays that can be used any time.

Vacation and sick time can be accrued based on the amount of time worked. Most corporations award their employees a minimum of six hours of vacation/sick pay for every pay period which can be used once enough time has been accrued. If an employee were to use all of their accrued time at the end of the year, a minimum of six hours per pay period would add up to about two weeks of paid vacation or eighty hours paid leave.

Benefits and Retirement

The last information that affects your employee payroll that will be discussed is benefits and retirement withholdings. If your company offers a benefits plan, which includes medical, dental, and vision insurance as well as other things unique to your plan, the employee contributions to benefits should be withheld on every paycheck. Retirement plans work the same way, so if your company offers a plan, be sure to deduct employee contributions before distributions of employee payroll.