Most Common Questions on How To Do Payroll
- What are my payroll tax responsibilities?
- What is the purpose of a Tax Form W-4?
- Is my employee exempt or non-exempt?
- How do I pay an employee who receives tips?
- Is direct deposit safe?
- What is a wage garnishment?
- What is a pay period?
- What is a workweek?
- What’s the best way to track hours worked?
How to do Payroll
What are my payroll tax responsibilities?
Employers are responsible for learning payroll the right way. This includes paying the employer’s share of payroll taxes, depositing tax withholdings from their employees’ paychecks, preparing associated reports, accounting the payroll expense and filing payroll tax returns. The employer’s portion of payroll taxes includes social security tax, Medicare tax and federal and state unemployment tax. Generally, you need to pay federal and state income taxes on at least a monthly basis. As for filing, Federal Form 941 (quarterly federal tax return) must be filed each quarter. Form 940 (FUTA tax return) must be filed yearly. Employers must send forms W-3 and W-2 to the Social Security Administration each year.
What is the purpose of a Tax Form W-4?
Tax Form W-4 is used to withhold the proper amount of federal income tax from employee paychecks. The IRS recommends that employees submit a new W-4 tax form each year, or any time their personal or financial situation changes. It’s important to complete this form correctly because the IRS requires people to pay taxes on their income gradually throughout the year. If you don't withhold enough tax, you could owe a large sum of money to the IRS. Also, interest and penalties for underpaying your taxes during the year will accumulate.
Is my employee exempt or non-exempt?
Learning how to do payroll includes determining if an employee is exempt or non-exempt. Exempt employees generally receive a set salary and don’t qualify for overtime pay when they work more than 40 hours in a week. The DOL establishes criteria under which employees are exempt, including:
- Employees who are paid above a certain weekly income threshold
- Employees who have a base salary that cannot be reduced based on the quantity or quality of work
- Employees who have a specific set of job functions (this includes roles like executives and sales professionals)
Read more about these and other classifications in the FLSA and your state’s wage and hour laws.
How do I pay an employee who receives tips?
Lots of service employees receive tips from satisfied customers. In fact, some employees earn more money in tips than in hourly wages. If you receive tips as part of your compensation, you should know your legal rights. The basic rule of tips is that they belong to employees, not the employer. Employees can't be required to give their tips to the company or to share tips with managers or supervisors. However, employers typically can pay tipped employees less than minimum wage and require employees to share their tips with coworkers. Under federal law, employers must pay a tipped employee at least $2.13 per hour before tips are counted. The $2.13 plus the tips reported by the employee should equal at least the minimum wage. See your state’s minimum wage laws to determine the cash wage that is required for tipped employees.
5. Is direct deposit safe?
Most employers (and banks) agree that direct deposit is safer than paying employees by check. Using paper checks instead of the direct deposit system puts consumers at greater risk for identity theft and fraud. Direct deposit is the safest way to receive federal benefits and you don’t have to worry about stolen, damaged or lost checks. Direct deposit gives people more control over their money.
What is a wage garnishment?
A wage garnishment is a court-issued order requiring employers to withhold a certain amount of an employee’s paycheck and send it directly to the person or institution to whom the employee owes money until the debt is satisfied. Federal law places limits on how much creditors can take from your paycheck. The amount that can be garnished is limited to 25% of your disposable earnings or the amount by which your weekly wages exceed 30 times the minimum wage, whichever is lower.
What is a pay period?
Employers must decide on pay schedules early on. The beginning and ending dates of this schedule is known as the pay period. Examples of pay periods include bi-weekly, semi-monthly, or monthly. Pay day is the day employees actually get paid, which tends to be a few days after the end of a pay period to allow time for payroll processing.
Even if your pay period covers more than one week (like bi-weekly or semi-monthly), employers must still establish a 7-day work week. The work week is necessary because it determines when overtime is due to your non-exempt employees (when they work in excess of 40 hours in a single week). This fact sheet by the Wage and Hour Division of the Department of Labor can help you better understand overtime and the work week.
What’s the best way to track hours worked?
Employers must keep track of all hours worked for nonexempt employees (regardless of the method of pay). Employers may use any timekeeping method they choose as long as it is complete and accurate. For example, they may use a time clock, have a timekeeper keep track of employee's work hours, or tell their workers to write their own times on the records.
You don't have to worry about how to do payroll when you outsource it to a PEO like FrankCrum. Partnering with us means you have a dedicated payroll coordinator that will work with you during each payroll cycle and a team of experts to handle complex payroll and tax obligations. Contact us to learn more about FrankCrum’s payroll services.