Knowing how to calculate payroll is a crucial factor in not only the smooth running of HR and payroll departments but of the overall management of your business. Payroll processes and formulas can entail a number of things, ranging from adding up key figures to arriving at a final net payment amount, including gross pay, deductions to taxes. This is why we've compiled this short guide to calculating and managing payroll.

Calculating payroll

The process of calculating for your company depends on what type of employee payments and deductions are made when processing payroll. Broadly speaking, to manage payroll, calculate your employee's gross pay based on the hours worked and pay rate. The next step in the payroll process is to make necessary deductions to arrive at the final figure for the employee payroll. In payroll processing, it is crucial to be sure your employees are paid the correct amount and tax information is up-to-date.

Time for payroll

Managing time is a crucial step in the payroll department. Hourly paid employees have to turn in timesheets (often done online), these then need to be reviewed and approved and attention needs to be paid to any overtime listed. Then, the hours worked can be entered by the payroll manager and team. Once these are entered into the payroll system (or have been entered automatically), your employees can receive their pay. With employees on fixed salaries, you can save time on calculating hours. Salaried workers are likely to receive a fixed wage, so to calculate the payment amount for each pay period, divide the annual salary by the total amount of annual pay periods.

Payroll deductions

Deductions are the other big part of payroll management - once you have determined hours and pay, deductions must be made. Having a weekly payroll deductions calculator for this can help - it will subtract both statutory and voluntary deductions. Firstly, statutory deductions are usually tax-based, like payroll and income tax. They can also be state-ordered deductions. Secondly, voluntary deductions could be things like pensions pots or medical insurance. A typical payroll process works in such a way that the person in charge will ensure that eg the payroll taxes and income taxes are submitted to the right government agencies. You could create a payroll formula for each general withholding you use (eg pension plans, childcare, etc).

Examples

Examples of simple payroll functions are as follows: Gross Pay = Wage Rate x Number of Hours Worked and Net Pay = Gross Pay – (Authorised Withholdings + Pay Deductions). Automated payroll software can help streamline the process.