6.0 Payroll
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Requirements and solutions to meet a need of every business. |
6.1.2 Federal Income Tax Withholding
6.1.5 State and County Income Tax Withheld
6.1.8 Employer Responsibilities
6.2.0 Payroll Service Companies
6.3.0 Independent Contractor Worksheet
Related Links
Federal Tax Forms
6.1.0 Manual Payroll Process
When doing payroll manually there are eight main elements of the payroll: gross pay, federal income tax withholding, social security tax, Medicare tax, state income tax withholding, county and or state income tax withholding, miscellaneous deductions and net pay. When beginning payroll you must have every new employee complete the form W-4. This form will give you an employee’s name, address, and social security number. This form will also inform you as to whether your employee is filing single or married and how many dependents they are claiming.
6.1.1
Gross Pay
If an employee is salaried, divide their salary by the number of pay periods in a year, this will give you their gross pay for the pay period. If an employee is hourly, take the number of hours for the pay period and multiply by their hourly rate. If an employee has worked overtime, an additional rate and calculation will have to be done for those overtime hours.
6.1.2
Federal Income Tax Withholding
Each payday you must calculate federal income tax withholding. The amount to withhold can be found by receiving a Circular E from the Internal Revenue Service. The Circular E is broken down into tables by pay period frequency, amount of pay, single or married and the number of dependents. All this information is found on an employee’s W-4.
6.1.3
Social Security Tax
Gross pay is multiplied by 6.2% for the first $62,700 of wages for 1996 (this amount changes annually and can be found in your Circular E).
6.1.4
Medicare Tax
Gross pay is multiplied by 1.45% for all earnings.
6.1.5
State and County Income Tax
Withheld
State, County and City taxes are computed either by a flat rate or by a graduated tax table. You need to contact your State Department of Revenue and ask for their withholding guide. This guide will be very similar to this Circular E.
6.1.6
Miscellaneous Deduction
These deductions vary by employee. An example would be child support garnishment. You are usually notified by the employee or the courthouse on these types of deductions.
6.1.7
Net Pay
Gross pay less Federal, Social Security, Medicare, State, County, and Miscellaneous deductions give you your net pay.
After your first payroll, you become trustee of your employee’s taxes that you have withheld. These taxes must be sent to the prospective governing bodies along with the employer’s portions on a timely basis. The need to contact your tax specialist is vital to confirm how and when the taxes should be transmitted. The penalties for late transmittals can be severe. The following table should assist you in the manual payroll process.
6.1.8
Employer Responsibilities
The following list provides a brief summary of your basic responsibilities. Because the individual circumstances for each employer can vary greatly, their responsibilities for withholding, depositing, and reporting employment taxes can differ.
New
Employee:
Verify work
eligibility of employees;
Record employees’ names and SSNs from social security cards; and,
Ask employees to complete Form W-4.
Each Payday:
Withhold Federal income tax based on each employee’s
Form W-4;
Withhold
employee’s share of social security and
Withhold any employee miscellaneous deductions:
A.
Deposit in an
authorized financial institution:
B.
Withheld
income tax, plus
C.
Withheld and
employer social security taxes, plus
D.
Withheld
and employer Medicare taxes
Note:
Due
date of deposit depends on deposit schedule (monthly or semiweekly)
Monthly
File State
and County withholding with your state department of revenue
Quarterly
(By April 30, July 31, October 31, and January31):
Deposit FUTA tax in an authorized financial institution if un-deposited amount is over $100:
File Form 941 (pay tax with return if not required to deposit); and,
File
State unemployment taxes
6.2.0 Payroll Service Companies
Many
companies chose to work with an external vender to provide payroll services.
These firms are able to offer their clients substantial efficiencies as
they use proprietary software and systems to automate their calculations,
withholding, deposit and return filing process. Roster can provide a quote for payroll services for your
company. Each vendor of payroll
services will have their own forms that need to be completed, including a
Limited Power of Attorney to the Internal Revenue Service and state taxing
authorities.