How Does Payroll Even Work?

Nearly eight of ten workers in the United States live paycheck to paycheck. The payroll process is a vital part of any regulated business with employees who depend on their wages. Yet, it’s not as simple as a regular transaction, like standing in a checkout line.

While the main objective is the amount of money we take home each week, there are many components to managing payroll. In addition to managing its own revenue, a business is responsible for ensuring workers are appropriately paid. This process continually takes place in advance long before you see any money.

Have you ever wondered how your paycheck’s total numbers are determined or exactly how does payroll work? Keep reading to learn more.

Tracking Hours

A business first must establish how long its pay period lasts which determines how often an employee will be paid. This is typically every one to two weeks. Worked hours can either be tracked on paper or electronically.

Keeping track of hours through manually punched time cards is an easy and cost-effective method to manage employee payrolls. Be mindful, however, of the extra time and calculation this may take each week to verify hours.

With the evolving convenience of the internet many electronic scheduling software programs are available for tracking hours. While this costs more it does provide the luxury of storing this information all in one place.

Calculating Deductions

Once each employee’s number of worked hours are verified, their gross pay will need taxes and other deductions removed to determine the pay. Any employee who works more than 40 hours in a week is entitled to overtime pay which is time and a half starting at each hour over.

Taxes required to be removed will vary by state law, but each employee’s deductions will likely differ from one another. This includes a payroll run with benefits like health insurance or 401(k).

Transferring Payment

A specific day of the week following each pay period should be established so employees can anticipate when they’ll receive earnings. This could be weekly or bi-weekly depending on how long each period is. Employees can be paid a variety of ways including cash, check, or direct deposit.

Each method still involves using the same process of deducting taxes and paying with cash under the table is illegal for regulated businesses. Sites like PayStubs.net conveniently allow companies to provide paystubs to employees for their own records. Direct deposit is a preferred method by many workers which can simply be facilitated using a bank routing number.

How Does Payroll Work? A Clear Understanding

Just as you’re employed to carry out assigned tasks for your company, there are also workers hired to diligently complete the payroll process each week. This involves working ahead to ensure employees are paid on time. Never feel hesitant to ask your employer’s finance department for clarification if you’re unsure how payments are calculated or deducted.

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