Apply the appropriate payroll calculation when processing payroll.
Payroll involves calculating wages and deductions; the calculation method depends on the wage and deduction type. The employer must make appropriate calculations to avoid improper payment to the employee and incorrect deductions. The U.S. Department of Labor and the Internal Revenue Service establishes the respective wage and payroll tax calculations, which employers must follow.
Time Clock
The employer can use the timekeeping of its choice, but it must be correct and complete. It should record the time the employee arrives to work, takes lunch (if applicable) and leaves for the day. Typically, the employee uses a time clock to track hours worked. The DOL notes that when calculating time clock hours the employer can round the time up and down to the nearest five minutes, one-tenth or quarter hour.
Example: Round 6:58 a.m. up to 7 a.m. and round 5:04 p.m. down to 5 p.m.
Straight Time
Employers cannot pay employees less than the federal minimum wage of $7.25/hour, effective July 24, 2009. The only exception is if the employee qualifies for the Youth Minimum Wage of $4.25/hour. The employer can pay this wage to employees under 20 years of age during their first 90 calendar days of employment. Hours worked up to 40 for the workweek are paid at straight (regular) time.
Example: 40 hours x $7.25/hour = $290, gross weekly pay
Salary Basis
Salaried employees must receive their full pay, regardless of hours worked during the week. The salaried employee receives a set pay each pay period, unless he’s had a deduction or pay adjustment. The salary per period depends on the number of pay periods in the year and the annual salary.
Example: $49,000 annual salary / 26 biweekly pay periods = $1,884.62, biweekly salary.
The employer can prorate the employee’s salary if she doesn’t work the full pay period in new hire and termination cases. Furthermore, it can dock her pay if she takes more benefit days than allowed. Prorating or docking the salaried employee’s pay should be done on an hourly or daily rate basis.
Hourly example: $49,000 / 2080 (calendar work hours for the year, including holidays and benefit days) = $23.56/hour.
Daily rate example: $49,000 / 26 biweekly pay dates / 10 days = $188.46/day.
Overtime
The employer must pay overtime to qualified workers at the latter’s overtime rate of one-and-one-half times their straight-time rate. Qualified workers include nonexempt workers covered under the DOL’s Fair Labor Standards Act (FLSA) who work more than 40 hours for the workweek. Pay the excess hours at the overtime rate. Suppose the employee works 56 hours for the week and earns $11.50/hour. Pay 40 hours at straight time and 16 hours at the overtime rate.
Calculation: 16 hours x $17.25 ($11.50 x 1.5) = $276, gross overtime pay.
Payroll Taxes
Calculate federal payroll taxes according to IRS guidelines. Withhold the employee’s federal income tax according to the IRS Circular E withholding tax tables and the employee’s filing status and allowances (W-4 form). The Social Security tax rate is 6.2 percent of gross wages; the Medicare tax rate is 1.45 percent. Suppose the employee earns a weekly salary of $825.
Social Security tax example: $825 x 0.062 = $51.15, weekly withholding.
Medicare tax example: $825 x 0.0145 = $11.96, weekly withholding.
Tags: overtime rate, annual salary, benefit days, employer must, hours overtime, hours overtime rate, hours worked