There are many reasons for maintaining proper employee payroll records. One of the most common reasons is for an employer to check if his employee’s income tax deductions and credits are accurate and up to date. It’s also necessary for an employer to accurately report all employee salaries and expenses to the government in order to receive federal benefits. In order to protect the interest of the government and maximize its resources, employers should keep accurate records. These records also help in appealing cases of unemployment and discrimination when employees have problems with their classification or they are facing harassment at work because of their classifications.
Every year, most businesses conduct an annual review of their payroll policies and procedures. Most small businesses hire a third party company to do this review and make any necessary adjustments. However, not all businesses have the time or knowledge to do this. In such cases, it is wise for the small business owner to maintain proper employee information, collect information on his/her employees and assign wages.
All employees deserve to be paid fairly for their work. When employees are paid fairly for their hard work, they will feel more confident about doing their jobs well. The morale and production of the employee can also be improved. Allowing the new hire to be paid at a higher wage is in the best interest of the company as it allows the new hire the opportunity to purchase all their needs (including health care) from the company. Also allowing the new hire to be paid at a higher wage reduces the amount the new hire needs to borrow from the company.
A number of employee categories are distinguished based on the work they do each week. There are five basic categories: overtime rates; minimum wage; tip; sales tax; and social security/state income taxes. Calculating the employee’s gross salary and overtime rates requires knowledge of these five categories. The employee’s gross salary is the amount the employee actually earns minus the weekly rate for each of their five job category hours.
Overtime Pay deductions are only available to salaried employees. They include all overtime pay that the employee receives, if any, plus vacation pay. For the most part, employees must wait two weeks before they qualify for the overtime pay deduction. This waiting period is mandated by federal law. Vacation pay does not count towards the two week wait.
Gross Income includes all of an employee’s wages and salaries plus any tips the employee receives. This total is then divided by the number of hours worked to determine the employee’s gross income. The employee’s gross income does not include tips. However, if tips are included in the gross pay calculation, these tips must be taken into account along with the employee’s gross income.
Federal and local payroll taxes are calculated based on a schedule determined by the employer. These schedules are updated each year and changes are made accordingly. If an employee’s gross income decreases, deductions can be made. For example, if the employee’s annual salary drops from whatever it was to whatever the new total wages are, an employee deduction for this change can be made. If the employer has an automated withholding system, deductions can be made without having to manually go through the proper paperwork. However, some employers still require paperwork for certain types of deductions.
There are many different types of tax deductions. Most are completely taxable, but there are some which are totally nontaxable. Non-taxable fringe benefits include health insurance premiums paid to an employee and/or his or her family, education, child care, and legal fees. Taxable fringe benefits include retirement benefit and prorated annuity payments. When an employee receives an award of prorated annuity payments, he or she must report this as taxable income. Any amount over the eligible amount that exceeds the deductible for that year is deductible as a personal tax deduction.