Tax Category Tax: calculations, VAT, self-employment tips and more

How to Calculate Payroll Manually

Some employers use payroll software to process their payroll. Payroll software processes the payroll quicker than the manual method and involves less calculation. But if your workforce is small, you may not need payroll software. Still, the manual method requires a cautious approach; everything is done by hand, which can result in payroll errors. Consequently, use this method only if your staff is less than 10 employees. If you understand payroll procedures and related tax laws, you can process your payroll manually and accurately.

Figure hourly employees' hours. Typically, hourly workers must complete a time sheet or punch a time clock. Use the employee's time sheet/time card to determine the number of hours worked. Then, pay according to the pay frequency.

For instance, say the employee earns £5 per hour and is paid weekly. His time sheet for the workweek shows: Monday to Friday, in at 8 a.m., lunch at 1 p.m., back at 2 p.m., out for the day at 5 p.m. Subtract one hour for each day's lunch. His gross pay for the week would be £234 (40 hours x £5).

Check for overtime hours worked. Overtime hours are those worked in excess of 40; they are paid at the employee's overtime rate---1 ½ times his regular rate. Typically, hourly employees qualify for overtime pay. But, the employee must physically work more than 40 hours in a workweek to receive it.

For instance, say he earns £6 per hour and his time card for Monday to Friday shows: in--8:30 a.m., lunch in--1:30 p.m., lunch out--2 p.m., out--6:30 p.m. Subtract 30 minutes for unpaid lunch. Pay him 40 hours at straight time and 7.5 hours at his overtime rate. Overtime calculation: £9 ($10 x 1.5) x 7.50 hours = £73.10 gross overtime pay.

Determine salary pay. Salaried employees' pay usually stays the same each pay period. For instance, say the employee's yearly salary is £29,250 and he gets paid on a biweekly basis. Calculation: £29,250 x 26 biweekly pay periods = £1,125.00 gross biweekly pay.

The only time her pay will change is if she has had a pay adjustment or a deduction change.

Subtract statutory and voluntary deductions (such as health and retirement benefits) from gross pay. Use the IRS Publication 15 and the employee's W-4 form to determine federal income tax. Use her state income tax form and the state withholding rates to figure state income tax, if applicable. Use the IRS Publication 15 to determine the Social Security and Medicare rates for the current tax year. Subtract wage garnishments, if applicable. The result after these deductions is the employee's net pay.


Pay benefit days such as vacation, sick and personal time at the employee's regular hourly rate. If the employer pays double-time for hours worked on holidays or weekends, pay them at twice the employee's normal pay rate. Round hourly employees' time up and down to the nearest quarter hour. For example, round 8:12 a.m. up to 8:15 a.m. and round 5:05 p.m. down to 5 p.m. Rounding may cause the employee to slightly gain or lose time.

Things Needed

  • IRS Publication 15
  • State tax withholding tables
  • Time cards/time sheets