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Guide on how payroll calculation works

Payroll calculations are being used to reduce the level of challenges. This calculation makes the work easier with satisfactory output. Every month when the payment cycle knocks our door we have to face the challenges of at least 6-13 percent employees. The payroll processing department is the mainly responsible department to short out this challenging situation. The staff of accounts and HR department comes under the payroll processing department. Payroll software is designed to maintain this type of calculation work. There is no doubt in the efficiency of this software but it’s partly helpful.

For a complete payroll calculation solution, we need the support of a unique combination. The combination of a well defined smart payroll process along with the effective payroll software can present a disruption-free complete payroll solution. The payroll process and software need to be suitable for each other. The best part of this combination can serve the employee’s satisfaction and cost-cutting advantage.

The payroll calculations are not easy. Earlier employers were responsible for these calculations. After some time as the size and shape of the companies increase they hire people to handle this calculation. But if we talk about these days the competition level is unexplainable. There is no space for mistakes and slow speed. The lazy calculation with lots of mistakes can affect the overall system. So the payroll software has been introduced with great efficiency and faster results possibilities. Some of the payroll services are leading by using a smart combination of the software and payroll process. Below are some considerations for the payroll calculation:

  • Pay period
  • Salary structure
  • Employee types
  • PAN no and statutory requirements
  • Modes of salary calculation
  • Bank information of employees

Let see how payroll calculation works by using the above-mentioned considerations:

There are various things that can affect the overall calculation and method. Different policies, deductions, and allowance by a company can differentiate the payroll calculation method and its output. Some particular principles are necessary to be followed and the payroll calculation works along with these principles.

  1. Hourly worker’s payroll calculation: The workers who are hired on a fixed amount for every hour of their work are called hourly workers. Their daily, weekly and monthly working hours are recorded by using registers or software. If the total working hours of a worker are 60, then to calculate the worker’s salary we need to multiply it with his wages per hour. Suppose his per hour wages are 20 then his total comes to (60*20= 1200). This is a very simple calculation with no deductions and no other additions.
  2. Salaried employee’s payroll calculation: The next we will discuss the payroll calculation for the salaried employee. Normally we can see that there is no provision for the overtime payment to the salaried employees. So a fixed salary goes into the continuity. The method that is applicable here is to divide the total annual salary of the employee by the number of months in a year. This example will help to understand the calculation easily. Example: Annual salary-120000/12 months =10,000 per month.
  3. Statutory deductions, subtracting method: statutory deductions are the deductions of different types of taxes such as income tax, federal income tax, medicare tax, security tax and many more. The standard rate of interest is applicable to income tax. Different deductions of taxes may vary as per the terms and rules. For the tax calculation assistance, the Canada tax calculator is a very popular software.
  4. Voluntary deductions subtractions: First the deduction of statutory is done and after that, it comes to deduct voluntary deductions. First of all, let me explain what voluntary deductions are. We include disability benefits, retirement benefits, medical and insurance benefits. As per the plan offered by a particular company, these amounts of voluntary deductions are subtracted. These voluntary deductions are completely different from the statutory deductions. We get voluntary deduction back as a benefit but statutory deductions only subtracted. Ontario tax brackets can explain tax deductions very well.
  5. Deposit of deductions: Once the deductions are subtracted from the salary of the employee it is first priority to get it deposited. The deposit of these deductions is done to an authorized government organization. Government authorities also do the verifications and audits to verify the right deductions and their deposits. This supports a fair procedure to be followed by the companies and their employees.
  6. Issue of checks or direct deposits: Bank details of the employees are taken by the department to process the prepared salary in their account. The direct transfer to the employee’s account is found the most convenient and fast-medium. But in some of the cases where delayed encashment is required paper cheque is also issued to the employees. Preparing salary by using payroll calculation becomes quick then the mode of payments also needs to be quick as we are living in the modern age. The possibilities of error are high if we use the paper cheques. Signature mismatch, wrong date, wrong amount, and overwriting and more are the common problems that occur while using paper cheques for the payment method. Maximum companies are using direct fund transfer to stay free from the errors and inconvenience.

Payroll calculation plays a highly appreciable role in making the complicated calculations simple. The use of process and software saves people from facing the trouble of making mistakes or following confusing lengthy procedures. The time of the employer and its staff is so valuable, and the use of this software saves their time. The use of an upgraded software can lead to making faultless calculations each time. The right calculation means the right distribution of money and the right distribution of money bring faith in the mind of the employees. Along with employees, the right distribution of salary saves the employer and his/her staff from spending their time in finding out the wrong calculations and transfers.