Payroll Accounting is a specific type of accounting procedure which is connected with calculating and reimbursing compensation for all the company employees. Business owners are usually responsible for a lot of different accounting duties and so, they need to be familiar with payroll accounting. This type of accounting will ensure that your employees will receive their salaries on time.
Payroll Accounting seems really easy but there are a lot of procedures involved with it. You have to make considerations for fringe benefits, payroll taxes, overtime pay, and garnishment issues amongst various other things.
The first step of payroll accounting is to collect daily, weekly and monthly records of all the employees. You need to note that how many hours a particular employee has worked. You need to make a record of the leaves as well. Salaried employees usually have a base salary and on top of that there are bonuses and commissions.
On the other hand, hourly employees might work at a different rate every month. Accountants use time cards and electronic time clocks to record the exact numbers of hours of the employees. Payroll accounting is needed in case of independent contract workers as well. In fact, a lot of organizations hire independent contractors and allot them duties that classify them as regular employees. This helps them to decrease their payroll tax and work compensation insurance premiums.
The second step of payroll processing is to calculate the remuneration owed to each employee. Calculating compensation is quite simple but, sometimes it can be complex of you have a varied business structure. For example, calculating the pay for independent contractors is very simple as it involves multiplying the contracted rate by the number of hours worked. On the other hand, it can be a little complex to calculate the salary of the CEO as it might involve automatic distributions to investment accounts, bonuses and even reimbursement on business expenses.
Employees should pay incomes tax and employers should submit the payroll tax. However, the employer is responsible for submitting and filing both. You need a payroll accountant to calculate the income tax owed by each worker after the gross compensation. After the calculation the accounts department of any company will withhold the taxes from the employee’s pay and then submit those taxes to the Internal Revenue Service regularly.
This varies from company to company and depends on their business structure. Many companies offer automatic distributions in to 401k plans, investment accounts and even paid vacations for employees. In such a scenario, it becomes very difficult for your payroll accountant to calculate the hours and compensation. For example, if a company offers a paid vacation, then the accountant needs to compensate him for zero hours of work done. Most companies have retirement contributions and so, they must be calculated, withheld and later submitted to the holding company account. Any other contributions offered by the company will also be handled by the payroll department only.
The final task of the payroll department is to distribute each person’s net salary. This can be done by mailing checks, making direct deposits in to checking accounts, distributing cash and loading prepaid debit cards.
