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How to Calculate Payroll Manually


You can use payroll software to calculate your businesses payroll, since it may process the payroll faster than if done by hand and it also involves less calculation. However, if you own a small company, with no more then 10 employees, you can calculate the payroll manually and you may not need any payroll software. Remember that the manual method requires more time and effort, and, since all the calculations are done by hand, it can result in payroll errors if you have no experience. But, by understanding the procedures and the payroll related tax laws, you may have a better understanding of your business and you can also process the company’s payroll manually and with great accuracy. It’s always a great idea not to depend on the payroll software 100% and try to understand the whole process, so that in case of a system error you have a backup option.

Other options to process your payroll are an in-house computerised system, that involves payroll software or the external system that means outsourcing your payroll to an online accountant or a service provider. But, if you decide to calculate the payroll by hand, or you just want to find out more about the whole process and calculations method, here are the steps and instructions you should be following:

Determine the pay for the hourly employees

Use your employee’s time sheet/time card to figure out the number of hours worked inside the work hour program and pay according to the pay frequency you established, monthly or weekly. This way you will have the gross pay for the week or the month.

 Check the overtime hours worked

You should always check if your employees have overtime hours. The overtime hours are considered the ones worked in excess of the 40 hours/months and are usually paid with 1 ½ times the regular hourly rate. Usually, hourly employees can qualify for overtime pay, but only if they work more then 40 hours on a week. If this is the case, you have to calculate the 40 hours at the regular rate per hour and the overtime hours with the higher rate.

Determine the pay for the salaried workers

To determine the pay for the salaried employees, you usually have to divide the employees yearly salary for each period paid. But still, if the employee had a payment adjustment you have to calculate it also, and then the salary would change.

Subtract the deductions

From the gross pay, you have to subtract all the statutory or voluntary deductions like the health and retirement benefits. To determine federal income tax you should use the IRS Publication 15 and the employee’s W-4 form.

To determine the Social Security and Medicare rates, use the IRS Publication 15 and don’t forget to subtract wage garnishments, if applicable. After you make all the deductions, you get the employee’s net pay.

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