How to Calculate Manual Payroll

A manual payroll is done entirely by hand; an in-house computerised system includes an on-site payroll staff and the use of payroll software; and an external system involves outsourcing the payroll to a payroll service provider. The latter two systems can capably process payroll for any number of employees. A manual payroll system is recommended if your payroll is small---fewer than 10 employees. If you keep this mind, and understand payroll processing procedures and payroll tax laws you may successfully process a manual payroll.

Figure hourly employees' pay. Typically, hourly employees complete a time sheet or punch a time clock. Ensure the employee and his supervisor (if applicable) signs the time sheet.

Pay regular hourly wages for each hourly employee's first 40 hours of work and overtime wages---1.5 times the hourly rate---for additional hours worked.

For example, for an employee who £7 per hour and his time sheet reflects for Monday through Saturday: in--8:30 a.m., lunch out--12:30 p.m., lunch in--1:30 p.m., out--5:30 p.m. Subtract one hour for unpaid lunch. Pay him eight hours for each day, which equals 48 hours for the week.

Regular pay calculation: 8 hours x 5 days (Monday to Friday) = 40 hours x £7/hour = £312 gross regular pay.

Overtime pay calculation: 8 hours x 1 day (Saturday) x £11 = £93 gross overtime pay.

Determine salaried workers' pay. Salaried workers are normally paid the same each pay date. At times, you may have to deduct or prorate their pay, such as in new hire and termination cases, or when the employee has taken more benefit days than allowed. Prorate the salaried employee's pay based on her daily rate or hourly pay.

For instance, if she earns £40,950 annually, paid biweekly.

Hourly rate calculation: £40,950 / 26 biweekly pay periods / 10 days / 8 hours = £19.60/per hour.

Daily rate calculation: £40,950 / 26 biweekly pay periods / 10 days = £157.50/day.

Subtract statutory deductions such as taxes and wage garnishments. The employee's federal income tax is based on his filing status and number of allowances recorded on Form W-4 and on the withholding tax tables depicted in the IRS Circular E. Use either the wage bracket or the percentage method to figure the tax.

Withhold Social Security tax at 6.2 per cent of each employee's gross income, up to the yearly wage base of £69,420. Withhold Medicare tax at 1.45 per cent of all gross wages.

If state taxes apply, use the employees' state tax form and the state withholding tax tables to figure the tax.

For wage garnishments, follow the instructions on the paperwork and deduct accordingly.

Subtract voluntary deductions, such as parking fees, health benefits and retirement contributions. The result is the employee's net pay.

Tip

Pay benefit days such as vacation and sick time and holidays at the employee's regular pay rate. Some businesses pay hourly employees twice their hourly wage rate for hours worked on company-recognised holidays, but labour law does not require them to do so.

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Things Needed

  • IRS Circular E
  • State withholding tax tables
  • Time sheets/timecards

About the Author

Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.

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