How To Calculate Employee Payroll

If you are an employer, one of the most important things for you to see your business flourish is to make sure that your employees get paid for their work on time. In order to pay your employees, you need to have a proper payroll system.

There are various ways in which you can calculate employee payroll. It really does not matter which method you are using for the purpose, you need to follow certain principles in order to calculate employee payroll.ok


  • 1

    You may have two types of workers in your organisation; hourly and salaried. First calculate how much you are going to pay to the hourly workers.

    Conventionally, hourly workers are supposed to maintain a weekly time card which, apart from other data, also keeps record of how many hours an employee has worked in a particular week. Use the data from each employee’s weekly time card to calculate the payroll. For instance, if an employee earns $11 for each hour worked, is paid twice a month and his weekly time cards for two consecutive weeks show that he has worked a total of 80 hours. When you have this data, you just need to perform a few simple mathematic calculations: 80 hours x $11/hour = $880 (Gross Salary).Now some of the employees may be working overtime. For overtime hours, the hourly pay rate is 1.5 times the normal pay rate. Let us suppose that an employee worked 90 hours in two weeks. This mean he has 10 overtime hours on his time card. This is how you will calculate his salary. (80 hours x $11/hour) + (10 hours x $11hours/hour x 1.5) = $880 + $165 = $1045 (Gross Salary).

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  • 2

    Now you need to calculate the amount to be paid to salaried workers. Typically, salary employees are paid a fixed wage for every pay periods and most of them are not entitled for additional wages for overtime hours but this is not true in all cases. Before making the payroll, get a list of which salaried employees are not entitled for overtime wages and which one’s are. Dividing an employee’s yearly salary by the number of pay periods each year, calculate each employee’s payroll. Let us assume that a salaried employee’s yearly salary is $70000 and he gets paid once every month (12 times in a year). Calculation:  $70000 / 12 = $5833.33 (Monthly Salary). In case that particular employee is entitled for overtime hours, calculate and add the overtime wages to his monthly salary as in the first step.

  • 3

    Now you need make the necessary deductions such as Income tax, Security tax, Medicare tax etc. Get a list of all applicable taxes and deductions. Make the necessary deductions from each employee’s gross salary. The best way to make deductions is to use a computerised software for the job.

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  • 4

    Some of the employee’s are subject to voluntary deductions such as parking fees; medical, dental, life and disability insurance; and retirement benefits. Take into consideration such deductions for each employee.

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