In payroll management, a payroll is basically the electronic record of all employees of a given company which contains all their salaries, hours worked, benefits and other relevant information needed by that particular company to calculate their tax obligations and remit it to the government on behalf of its employees. So, what exactly constitutes payroll? How does one go about creating such a document? The first thing to remember in payroll preparation is that there are different kinds of payrolls available for different purposes. Some payrolls are used in daily operations in offices while others are utilized in business to facilitate tax return submissions.
There are also two kinds of payrolls, namely the basic and customized. Basic payrolls are those paid on an individual basis with no guarantee of deferred or future taxes. A typical basic payroll would include all the normal salary and wage payment data of an employee, with none of his/her accrued benefits or deductions included. Typical taxes included in this kind of payroll are: social security; Medicare; federal income taxes; self-employment taxes; state income taxes; taxes owed by the employee to other government agencies; and certain taxes imposed by the employer, if applicable.
On the other hand, customized payrolls are those prepared based on specific payroll tables of specific employees. For instance, in the United States, social security numbers are required for EFC calculations, and national origin is also a deciding factor in EFC computation. Typical customized payrolls include the following: employee’s gross pay; tax withholdings; employer withholdings; investment tax; and EFC calculation.
Aside from taxes, some employers may also want to include deductions to their payroll systems for various reasons. These are common and are listed in the employee’s gross income tax return, which is then forwarded to the local tax authority for processing and remittance. An EFC is then calculated based on the amount of deductions listed on the payroll system, and a final EFC is calculated after applying all local laws and adjustments to income tax.
There are different types of deductions, which are used depending on the employee’s gross pay and type of job. The list of available deductions includes: child care expenses, medical expenses, business travel expenses, mortgage interest, charitable contributions, state and local taxes, and federal income taxes. Business vehicle purchases are not considered deductions; however, if the business was utilized solely for business purposes, then some business expenses may be deductible, depending on the nature of the purchase. Other deductions include educational expenses, estate and gift taxes, charitable donations, and state and local taxes.
In order to encourage employees to maximize their tax deduction chances, employers usually allow them to take unlimited deductions. However, it is also important for employers to recognize that these deductions can have a time-consuming and cumbersome process. In addition to being time consuming, employers must allocate a certain portion of their salaries or fees for these deductions, which makes payroll processing more tedious. Using a payroll debit calculator or an automatic payroll refund software program will alleviate the administrative burdens of processing payroll.