- How do you calculate employee checks?
We're gonna talk all about that in this video.
Hi, everyone. I'm Hector Garcia.
I'm a CPA, QuickBooks consultant, and a business owner.
I'm a big fan of Intuit QuickBooks
and I'm partnering with them
to produce this video series about payroll.
In fact, I have an entire YouTube channel
where I have tons of videos about QuickBooks, accounting,
tax, and a bunch of important small business topics.
Today I'm going to talk about
how to calculate employee checks, step-by-step
so you'll know how to do it.
Remember, if you like this video,
go ahead and hit the "like" button
and subscribe to the QuickBooks YouTube channel.
Okay, let's start from the top.
This is called the paycheck formula.
The paycheck formula goes like this:
We're going to start with taxable wages,
which is also referred to as gross pay,
minus pre-tax deductions,
minus employee taxes,
minus after-tax deductions,
plus non-taxable reimbursements.
This will equal your net pay.
Before you put the paycheck formula into practice,
let's talk about the ingredients you will need
to manually calculate a paycheck.
For that, you're gonna need the following:
the employee's hourly rate or salary,
federal, state, and local tax rates,
information about the employee's retirement contributions,
deductions, and reimbursements.
Now let's go into the details
for calculating an employee's paycheck.
It involves five steps and I'll walk you through each one.
Step one:
we're going to calculate our employee's gross wages.
Gross wages are the full amount an employer pays
before deductions are made.
Gross wages can sometimes exceed regular wages.
For example, if they include overtime pay or bonuses.
All of these wages are generally subject to tax.
The components that go into calculating gross wages,
include an employee's hourly rate, or a salary rate,
how frequently you pay them,
and whether other aspects of their compensation,
such as bonuses,
are paid in an annual basis or even in each period.
If the employee has worked overtime,
that needs to be calculated at the appropriate rate as well.
Overtime rates actually vary by state.
Step two is to take out any elective pre-tax items.
These items, the employee has chosen
to withhold from their paychecks.
This includes things like health insurance
and employee 401K contributions.
All of these pre-tax items
essentially reduce the employee's taxable wages.
Okay. Now to step three,
which is to deduct employee taxes.
This includes your employee's federal income taxes,
as well as taxes owed to the state, city,
or local governments.
I'm also adding a special half-step.
Let's call it "step three and a half,"
which is to accrue the employer portion of FICA,
which is the tax used to fund social security and Medicare.
These taxes are paid 50% by the employer.
Step four is to take out any involuntary deductions
from the employee's paycheck.
A wage garnishment is a good example
of an involuntary deduction.
It may be a required payment
to repay debts such as child support.
Typically the business will receive formal instructions
from the court, including the amounts and the frequency
and finally, step number five
is to add all non-taxable reimbursements
to the net of the employee's paycheck.
This is when the employers pay back employees
when they spend their own money
on business-related expenses, such as travel,
or purchases for work-related supplies and tools.
These are called non-taxable reimbursements
because they typically don't count
towards calculating taxable wages
but they do increase the net check.
All these items will help you arrive
to the net paycheck amount for your employees
and accumulate the payroll tax and tax liability payments
to remit to the proper agencies.
Staying organized, saving time, and avoiding errors
are some of the biggest reasons
why a lot of small business owners decide
to use payroll software such as QuickBooks Payroll.
Some of the other benefits
of using QuickBooks Payroll include:
automation; this will be the ability to run your payroll
and process direct-deposit every pay period, automatically.
Depending on the version of QuickBooks Payroll you have,
you could have access to expert assistance
to set up your payroll, which could be a daunting task
for a first-time employer doing it on their own.
You also have the ability to print checks with the pay stubs
if you don't want to process via direct-deposit.
With QuickBooks Payroll Elite,
you can rely on a payroll expert to set up your payroll,
review your tax filings,
and take responsibility for potential mistakes
if they happen to arise.
As you can see,
calculating employee paychecks could be difficult
but using software, such as QuickBooks Payroll,
can be a valuable alternative to doing it manually.
If you have any questions about this,
and other payroll topics, leave a comment below.
Make sure to "like" this video
and subscribe to the YouTube channel
if you find this helpful
so you don't miss out on future videos.
I'm Hector Garcia.
Thank you for joining me and I'll see you next time.
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