Payroll accounting begins by comprehending your expenditures, which encompass taxes and obligations as an employer. This comprehensive guide aims to unveil these aspects.
The cost of maintaining employees can be significant, wouldt you agree? Beyond just the payroll itself, there are additional expenses to consider.
Wre referring to federal and state taxes, insurance premiums, and other similar financial commitments. These are commonly referred to as payroll liabilities. Les delve into the details to grasp how these elements influence your financial statements.
What are employer payroll expenses?
These represent the costs incurred by a business owner in relation to their employees. Two distinct types warrant consideration. Firstly, there are deductions extracted from employee wages. Secondly, there exist payroll taxes and outlays that pertain uniquely to the employer.
The initial classification is termed “withholdings,” given that these costs are subtracted from the gross pay of employees. Les begin our discussion with this category.
Withholding Taxes
The withholding taxes are contingent upon your employes situation. Upon receiving a W4-form from your employee, you can precisely determine the required tax withholding. Fortunately, reliable payroll software can perform this calculation on your behalf. Is highly recommended to acquire such software to streamline your processes.
In a general sense, the anticipated withholding taxes encompass:
Federal Income Taxes (FIT)
State Income Tax (SIT)
FICA (Medicare and Social Security)
Benefits Withholdings
When you provide an extensive employee benefits package, this is the stage at which is funded – or at least partially. A portion of the benefit cost is subtracted from employee gross pay. Alternatively, you might have an arrangement in which you cover the entire corresponding cost. For instance, if you offer a 401(k) plan with employer matching, yod be covering that expense directly.
The withholding of benefits is fully customizable according to your organizatios policies.
Illustrative examples encompass:
Worker Compensation Insurance
Health Insurance
Commuter Benefits
Life Insurance
401(k)s or other Retirement Plans
Employer’s Payroll Tax Expenses
Now, les delve into the significant contenders: your payroll taxes. To be frank, payroll taxes aret excessively steep. Consider the employes FUTA tax – Federal Unemployment Tax Act. As of now, the FUTA tax rate stands at 6% for the initial $7,000 in gross income earned by an employee.
Thas quite reasonable! While there might be some slight deviations across states, the primary costs you can anticipate encompass:
FUTA (Federal Unemployment Taxes)
SUTA (State Unemployment Taxes)
FICA (Medicare and Social Security)
Payroll Expenses for Contractors
The primary distinction between engaging contractors and hiring employees pertains to tax withholdings. Contractors are accountable for handling their own tax withholdings. They are responsible for submitting their FICA contributions and managing their individual benefits packages.
In the case of contractors, you remunerate them based on their gross pay, and they assume the responsibility for managing the intricacies of taxation. This arrangement lessens your administrative burden.
How to Calculate Payroll Expenses
1. Make Sure Your Employees Have Completed the W4-Form
As I mentioned, the W4-form holds the key to tax withholdings. Make sure that new employees have a completed W4-form before your next payroll cycle.
2. Define Your Payroll Period
This could be quarterly or even weekly.
3. Use Gross Pay and Deductions to Calculate Net Pay
This is where you deduct withholding taxes and benefits withholdings from gross employee pay. You’ll then get the net employee wages.
4. Create a Payroll Journal Entry for Taxes
Now calculate your contributions. This takes into account the taxable amount of employee wages that you calculated above. You credit FICA, FUTA, SUTA, and any other expenses. Again – don’t feel you have to do this with an Excel sheet. Payroll software will save you.
Conclusion
The process of computing your payroll expenditures might appear intricate initially. However, when you dissect them, the task becomes more straightforward. The utilization of payroll management software can significantly aid in the computation of these taxes on your behalf. Additionally, accounting software can offer assistance. As we conclude, our advice is to avoid grappling with these challenges alone!
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