December 2023

Calculate each employee’s required deductions (taxes and taxable benefits) and subtract them from their gross pay to determine the net income. Keeping track of expenses is one of the main pillars of doing business. After all, expenses can affect your bottom line just like profits, so payroll expenses are no exception. It’s https://www.bookstime.com/ essential to have an in-depth understanding of your payroll expenses so you can accurately measure your company’s cash outflow and ensure your end-of-year checklist adds up. Learn how to reduce payroll costs—including employee wages and overtime pay, benefits, and the cost of your payroll provider—without layoffs.

What are payroll expenses for employers?

Many local cities, towns, and municipalities also charge their own taxes on your employee payroll. These vary a lot in the type and amount of local tax depending on where you do business and where your employees pay their taxes. For example, large metro areas like Chicago and New York City come with more local taxes, including payroll. Similar to FICA taxes, once an employee earns a set amount of wages for the year, you stop paying SUTA taxes on any additional wages.

Track and manage time

A payroll tax cut is when the government decides to stop collecting certain taxes from people’s paychecks. This can be a temporary or permanent measure and it doesn’t necessarily apply to everyone or every business. Running your payroll doesn’t have to be difficult, but also make sure you’re staying on top of your payroll taxes.

Setting up payroll

• The sum of all the concepts listed above forms the accrued expense for keeping an employee on the payroll.
• Payroll accounting is the recording and tracking of all payroll transactions.
• Calculating an employee’s net salary involves accounting for taxes and other deductions, while payroll refers more broadly to the payment method.
• You’ll need to add all payroll deductions together to get a grand total.
• Hourly employees, on the flip-side, earn pay for however many hours they actually work—think service workers (like housekeepers), blue-collar workers (like construction), and interns.
• When considering new positions, place their projected wages in the month you intend to add them.
• Many payroll fintech firms including Atomic, Bitwage, Finch, Pinwheel, and Wagestream are leveraging technology to simplify payroll processes.

It’s not the most exciting part about being an employer but is necessary to avoid paying additional money in penalties and fees. Upon hiring a new employee, you’ll determine a set annual salary and a guaranteed number of hours for which they will be paid. When an exempt employee is hired at an annual salaried rate, they are expected to work a minimum of 40 hours each week.

Is payroll a business expense?

However, they are often in a different part of the budget than payroll. The sum of all the concepts listed above forms the accrued expense for keeping an employee on the payroll. These benefits can range from insurance for workers’ compensation and health protection to 401(k)s or other retirement plans with life insurance.

How to Reduce Your Business’s Payroll Costs: Strategies for Budgeters

Small business owners benefit from accounting software because it helps them track accounts receivable and accounts payable, gauge their profitability, and prepare for tax season. A small business can use out-of-the-box software without requiring extensive customizations. The law requires that overtime hours over 40 hours per week be paid at one-and-a-half times the regular hourly rate. Some employees are exempt from the FLSA and the Act doesn’t apply to independent contractors or volunteers because they’re not considered employees. Many payroll fintech firms including Atomic, Bitwage, Finch, Pinwheel, and Wagestream are leveraging technology to simplify payroll processes.

Calculating total work time for hourly employees is a little more involved than it is for salaried workers but not too complicated. Essentially, you’ll add all of the hours and minutes an employee worked for the pay period. The non-exempt part what are payroll expenses of the position means these employees fall under federal labor law protection. The employer expects employees to work the set minimum number of hours each week, but if they exceed those hours, they must be paid at an overtime rate for them.

Project Employee Benefit Costs

As we said before, if your employees are salaried, most pay periods should look the same in your books. So the first question to ask is does payroll align with the last period? If it doesn’t, double-check that you can account for the difference (a change in personnel, a raise, working with a contractor, etc.). Form 940 is how you report all of your federal unemployment taxes (FUTA). It’s similar to Form 941 (which, remember, reports federal income tax withholding and FICA taxes), but you’ll only file this form once per year—instead of every quarter.

Chapter 3: Payroll taxes

There also disadvantages and additional costs that vary from state to state, so It’s best to talk this over with your accountant or tax adviser. Automating tasks such as time tracking and tax calculations and simplifying time-off policies will save time in the long run. Granting employees account access so that they can update account information will also reduce the amount of time you need to spend on payroll. Automation will lead to less time spent on payroll and more money saved.