Payroll can seem like a daunting task on your to-do list, but it's vital that you pay employees for the work they put in to ensure your books are accurate, and you're following the proper codes and laws. Whether you pay weekly, bi-monthly, or monthly, you'll want to find the best payroll system for your particular needs. Payment systems will all have different capabilities, but in the end, there are a few easy steps that you can follow to ensure you’re calculating payroll correctly.

Step #1: Calculate pay for hourly time worked

Whether you have a computerized system for clocking in or employees document this manually, you'll be basing your numbers on this information. For example, say you have an employee that makes $14 an hour, and they've worked 40 hours. You simply multiply $14 by 40 to get $560. However, let's say you allow overtime, and they've received an extra 5 hours of work this week. Then you would multiply the $14 by 1.5 to get $21 as their hourly rate for those 5 hours. However, overtime won't apply to all businesses and the payment amount for these extra hours won't always be time and a half. 

Step #2: Calculate pay for salary workers

Salary employees will differ in payment versus hourly, and overtime will be a little more complicated depending on the state you live in and the overtime protection laws that apply. When you determine salary pay, you'll generally divide it annually. So if you have an employee that makes $50,000 a year, and you pay them twice a month, you'll divide that number by 24 to reach a total of $2,083.33 per paycheck.

Step #3: Apply the proper deductions

Now that you know how to calculate the gross income for your employees, it's time for those deductions. You'll want to take out things like federal income tax, Medicare, Social Security, and state income tax if you live in a place this applies. The amount will vary per employee depending on aspects like marital status and income. There is software available to help you calculate the deductions, and if you try to do it manually, be sure you get guidance from the IRS’s tax guide.

Step #4: Apply voluntary deductions

Some employees will have voluntary deductions taken out of their paychecks such as parking permits, cafeteria meals, and health insurance. Now it's time to go ahead and deduct these numbers, and then double-check your work to ensure nothing was missed.

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