Payroll accounting concerns all aspects of paying benefits and wages to your employees. This process involves keeping precise records about the expenses related to all types of compensation, as well as on-time payments to employees. Each system will include more or less automation may not have all of these steps, but the general process will still apply to most payroll systems:
Set up new employees
When hiring new employees, have them fill out payroll-specific information such as the medical insurance forms and W-4 form which will require payroll deductions. Keep copies of everything to include in the next payroll.
Collect timecard information
Employees who are on a salary don’t require changes in wages paid for each payroll. But for hourly employees, you need to collect and summarize information regarding the hours worked. You can provide a scannable badge to employees to make the process of clocking in easier to keep track off.
Verify timecard information
Once you collect information about the hours worked, have supervisors verify that the recorded time is correct.
Summarize wages due
Take the number of worked hours for each employee multiply it by their pay rate. Don’t forget to factor in any overtime or shift differentials.
Enter employee changes
Some employees may request to have changes made to their paychecks, which is the number of tax exemptions or pension withholdings. This is best recorded and taken into account before calculating the taxes. That’s because it changes the amount of wages to which taxes are applied.
Calculate taxes
Determine the amount of taxes to be deducted from employee gross pay by using the IRS tax tables.
Calculate wage deductions
Besides tax deductions, you need to also factor in additional deductions such as for medical insurance, garnishments, life insurance, and union dues. It’s also important to track the goal amounts for these deductions so that once it’s reached, you stop deducting.
Deduct manual payments
Any manual payments made to employees before the paychecks, like advances, need to be deducted from the remaining net pay.
Create a payroll register
Compile the deduction and wage information for each employee in the payroll register and create a journal entry to record the payroll. The payroll software packages automatically create this document.
Print paychecks
Using the information in the payroll register, print employee paychecks. It’s a common practice to itemize gross wages, deductions, and net pay in a remittance advice that goes with the paycheck.
Pay by direct deposit
Let your direct deposit processor know the amount of all direct deposit payments, issues remittance advices to those employees.
Issue paychecks
Have a paymaster issue paychecks to employees based on the information in your payroll accounting, requiring employee identification if there are a large number of employees.
Deposit withheld taxes
Deposit all withheld payroll taxes and employer matched taxes at a bank that is authorized to handle these transactions.