Let’s be honest – nobody likes doing payroll. It’s tedious and time-consuming, and it can be a real headache. But, as a business owner or payroll manager, it’s a necessary evil. And while plenty of software programs and services are out there to make the process easier, sometimes you may need to do it manually.
But don’t worry; we’ve got you covered! With this guide, we will take you through these steps of calculating payroll manually, from figuring out gross pay to deducting taxes and other expenses and arriving at net pay. We’ll break down the process into simple, easy-to-understand steps, so you can control your finances without losing your mind.
Whether you’re new to payroll or a seasoned pro, this guide will provide the knowledge and tools to make payroll a breeze.
As a business owner, you may have a lot on your plate – managing operations, keeping customers happy, and ensuring your finances are in order. One area that requires your attention is payroll.
Although it may seem straightforward, managing payroll can be complex, and mistakes can have severe consequences for your business. Here are the reasons why payroll knowledge is crucial for business owners:
Accurately managing payroll ensures that your employees are paid correctly and on time. Failing to do so can cause employees to lose trust in the business and affect their productivity. Moreover, payroll mistakes can lead to overpayments, which can affect the financial stability of your business.
Payroll is subject to federal, state, and local laws and regulations. As a business owner, staying compliant with these laws is essential to avoid penalties and legal issues. Payroll knowledge helps you stay up-to-date with the latest laws and regulations and ensures your business follows them.
The way you manage your payroll reflects on your business’s reputation. Inaccurate payroll can cause employees to lose faith in the business and lead to negative reviews and comments online. You can maintain a positive reputation and improve employee satisfaction by managing payroll effectively.
A well-managed payroll system can help save costs. With a streamlined payroll process, you can avoid errors and unnecessary expenses, such as penalties and overpayments.
In conclusion, payroll knowledge is crucial for business owners. It helps ensure financial stability, legal compliance, reputation management, and cost savings. By understanding and managing your payroll effectively, you can take control of your finances and focus on growing your business.
There are several types of payroll that organisations can use depending on their needs and the types of employees they have. The most common types of payroll are traditional, online, outsourced, and global. Each type has unique benefits and challenges, and organisations must choose the one that best suits their needs. Understanding the different types of payroll is crucial for any organisation to ensure they can manage their payroll processes efficiently and accurately.
This is the most traditional type of payroll where employees are paid a fixed amount of money at regular intervals (e.g., monthly, bi-weekly, weekly). Standard payroll is suitable for businesses with consistent staffing levels and predictable working hours.
This type of payroll is suitable for businesses where employee hours and wages vary from pay period to pay period. Variable payroll typically involves tracking and processing different hourly rates, overtime, and shift differentials.
This type of payroll is based on sales commissions, where employees receive a percentage of the sales they make. This type of payroll is commonly used in sales-driven businesses such as real estate and insurance.
Contract payroll is used for workers who are paid based on a contract agreement, rather than hourly or monthly. This type of payroll is often used for freelance or contract workers, where payment is based on project milestones or deliverables.
This type of payroll is based on the number of pieces produced or tasks completed, rather than hours worked. This type of payroll is commonly used in manufacturing or assembly-line jobs, where workers are paid per production unit.
Some companies outsource their payroll functions to third-party payroll providers, who handle all payroll processing and compliance aspects. This can be a cost-effective and time-saving option for small businesses with limited resources.
This type of payroll is used for companies with a global workforce, where payroll is processed across multiple countries and currencies. Global payroll can be complex and require expertise in local tax and labour laws.
Managing payroll is an essential part of running a business, and calculating payroll accurately is critical for keeping your employees happy and maintaining financial stability. But calculating payroll can be a daunting task, especially if you’re new to it. In this article, we’ll take you through the step-by-step process of how to calculate payroll, including gross pay, deductions, taxes, and net pay.
Step 1: Determine the Gross Salary
The first step in calculating payroll is to determine the gross salary of the employee. This includes the base salary as well as any additional compensation, such as bonuses or commissions. If the employee is paid hourly, you will need to multiply the hourly rate by the number of hours worked in the pay period.
Step 2: Calculate the Employee’s Deductions
Next, you will need to calculate any deductions that need to be made from the employee’s gross salary. This can include taxes, Social Security, and Medicare contributions. Each deduction should be calculated based on the employee’s gross salary.
Step 3: Determine the Net Salary
Once you have calculated the employee’s deductions, you can determine their net salary. This is the amount that will be paid to the employee after all deductions have been made.
Step 4: Calculate the Pro-Rata Pay (if applicable)
If an employee joins or leaves the company mid-month, you will need to calculate their pro-rata pay. Pro-rata pay is a calculation that determines how much an employee should be paid for the time they have worked during the pay period. To calculate pro-rata pay, you will need to divide the employee’s monthly salary by the number of working days in the month, then multiply that figure by the number of days the employee has worked.
Step 5: Calculate Overtime Pay (if applicable)
If an employee works overtime, you will need to calculate their overtime pay. Overtime pay is typically calculated at a rate of 1.5 times the employee’s regular hourly rate for each hour worked over the standard work week.
Step 6: Calculate the Final Amount
Once you have calculated all of the necessary figures, you can calculate the final amount to be paid to the employee. This includes the net salary, any pro-rata pay, and any overtime pay.
Step 7: Record the Payroll
Finally, you will need to record the payroll in your company’s payroll system or ledger. This will ensure that accurate records are kept and that the employee is paid on time.
If an employee’s annual salary is RM60,000, their gross monthly salary would be RM5,000.
If the employee’s EPF contribution is 11% and the SOCSO contribution is 0.5%, the total statutory deductions would be RM645 (RM550 for EPF and RM95 for SOCSO).
For example, if the employee has requested a deduction of RM200 for a company loan, the total deductions would be RM845 (RM645 for statutory deductions plus RM200 for the loan deduction).
For example, if the employee’s gross salary is RM5,000 and their total deductions are RM845, their monthly net salary would be RM4,155.
If an employee joins on the 15th day of the month and their monthly salary is RM5,000, their pro-rated salary for the month would be RM2,500 (half of the monthly salary).
For example, if an employee works 2 hours of overtime at a rate of RM25 per hour, their monthly overtime pay would be RM50.
If the employee is entitled to a monthly travel allowance of RM500 and a performance bonus of RM1,000, their total allowances and bonuses would be RM1,500.
For example, if the employee’s net salary is RM4,155, they worked 2 hours of overtime at a rate of RM25 per hour (RM50), and they received bonuses and allowances totalling RM1,500, the final amount they would receive for the month would be RM5,705 (RM4,155 + RM50 + RM1,500).
To sum up, manually calculating payroll can be time-consuming and challenging, but it is essential to running any firm. You can ensure your employees’ payroll administration is accurate and effective by following the detailed instructions above.
However, it might be time to think about outsourcing your payroll to a professional and affordable provider if you discover that managing payroll is taking up too much of your time or you need help keeping up with the complexity of tax requirements. They can offer you the knowledge and tools required to ensure efficient and accurate payroll management, freeing you up to concentrate on expanding your company.
In conclusion, doing payroll manually is crucial for running any firm, but it can be time-consuming and challenging. Following the detailed instructions above ensures accurate and effective payroll administration for your employees.
If managing payroll becomes too time-intensive or you struggle with tax complexities, it’s worth considering outsourcing to a professional and affordable outsourced payroll provider. They possess the expertise and tools to ensure efficient and accurate payroll management, allowing you to focus on growing your company.
Read our article on ‘Why you should outsource payroll for your business to payroll providers‘ for more insights.
Servnetic Accounting & Tax Consultancy is also providing other accounting outsourced services in Malaysia, such as full-set accounts, tax submission and audit, and financial statement analysis. Reach out to us for enquiries.