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Payroll
From Wikipedia, the free encyclopedia
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In a company, payroll is the sum of all financial records of salaries for an employee, wages,
bonuses and deductions. In accounting, payroll refers to the amount paid to employees for
services they provided during a certain period of time. Payroll plays a major role in a company
for several reasons. From an accounting point of view, payroll is crucial because payroll and
payroll taxes considerably affect the net income of most companies and they are subject to laws
and regulations (e.g. in the U.S. payroll is subject to federal and state regulations). From ethics in
business viewpoint payroll is a critical department as employees are responsive to payroll errors
and irregularities: good employee morale requires payroll to be paid timely and accurately. The
primary mission of the payroll department is to ensure that all employees are paid accurately and
timely with the correct withholdings and deductions, and to ensure the withholdings and
deductions are remitted in a timely manner. This includes salary payments, tax withholdings, and
deductions from a paycheck.
Contents
[hide]
• 1 Pay Check
• 2 Payroll taxes
○ 2.1 Payroll Taxes in U.S.
• 3 Pay slip
• 4 Payroll card
• 5 Payroll Frequencies
• 6 Warrants
• 7 Payroll Outsourcing
○ 7.1 Payrolling
• 8 See also
• 9 Footnotes
• 10 References
For employees that, for one reason or another, do not have access to a bank account (bad check
history, not in close proximity to bank, etc.), there is a solution, offered by most major Payroll
Service Providers. Instead of an employee receiving a check, and paying up to 5-10% to cash the
check, the employee can have the direct deposit loaded onto a debit card. In this, a company can
save money on printing checks, not buy the expensive check stock, and not having to worry
about check fraud, due to a check being lost or stolen. A payroll card is a plastic card allowing an
employee to access their pay by using a debit card. A payroll card can be more convenient than
using a check cashier, because it can be used at participating automatic teller machines to
withdraw cash, or in retail environments to make purchases. Some payroll cards are cheaper than
payday loans available from retail check cashing stores, but others are not. Most payroll cards
will charge a fee if used at an ATM more than once per pay period.
The payroll card account may be held as a single account in the employer's name. In that case,
the account holds the payroll funds for all employees using the payroll card system. Some
payroll card programs establish a separate account for each employee, but others do not.
Many payroll cards are individually owned dda (demand deposit accounts) that are owned by the
employee. These cards are more flexible, allowing the employee to use the card for paying bills,
and the accounts are portable. Most payroll card accounts are FDIC-insured, but some are not.
[edit] Payroll Frequencies
Companies typically generate their payrolls on regular intervals, for the benefit of regular income
to their employees. The regularity of the intervals, though, varies from company to company, and
sometimes between job grades within a given company. Common payroll frequencies include:
daily, weekly, bi-weekly (once every two weeks), semi-monthly (twice per month), and to
somewhat of a lesser extent, monthly. Less common payroll frequencies include: 4-weekly (13
times per year), bi-monthly (once every two months), quarterly (once every 13 weeks), semi-
annually (twice per year), and annually.
[edit] Warrants
Payroll warrants look like checks and clear through the banking system like checks, but are not
drawn against cleared funds in a deposit account. Instead they are drawn against "available
funds" that are not in a bank account, so the issuer can collect interest on the float. In the US,
warrants are issued by government entities such as the military and state and county
governments. Warrants are issued for payroll to individuals and for accounts payable to vendors.
Technically a warrant is not payable on demand and may not be negotiable.[5] Deposited warrants
are routed to a collecting bank which processes them as collection items like maturing treasury
bills and presents the warrants to the government entity's Treasury Department for payment each
business day.
In the UK, warrants are issued as payment by the NS&I when a Premium Bond is chosen.
[edit] Payroll Outsourcing
Businesses may decide to outsource their payroll functions to an outsourcing service like a
Payroll service bureau or a fully managed payroll service. These can normally reduce the costs
involved in having payroll trained employees in-house as well as the costs of systems and
software needed to process a payroll. In many countries, business payrolls are complicated in
that taxes must be filed consistently and accurately to applicable regulatory agencies. Restaurant
payrolls which typically include tip calculations, deductions, garnishments and other variables,
can be difficult to manage especially for new or small business owners.
In the UK, payroll bureaus will deal with all HM Revenue & Customs inquiries and deal with
employee's queries. Payroll bureaus also produce reports for the businesses' account department
and payslips for the employees and can also make the payments to the employees if required.
Another reason many businesses outsource is because of the ever increasing complexity of
payroll legislation. Annual changes in tax codes, Pay as you earn (PAYE) and National
Insurance bands as well as statutory payments and deductions having to go through the payroll
often mean there is a lot to keep abreast of in order to maintain compliance with the current
legislation.
[edit] Payrolling
Payrolling is the business practice of referring a contingent worker to a staffing vendor or
payrolling provider so that they are the employer of record responsible for employer taxes,
payroll, and all legal matters pertaining to employing workers. Different from sourcing (or
recruiting) where the staffing vendor uses internal recruiters to locate contractors on behalf of the
requesting company or client, payrolled workers are identified by the client.[not specific enough to verify]
Often payrolled workers are known to the client from previous engagements or as former
employees. Because the costs of recruiting workers in to contract positions are eliminated the
payrollees are often processed at reduced mark up rates.
In the last several years, some dedicated payrolling companies have emerged in the staffing
industry to provide payrolling services. In the US they are known as Professional Employee
Organizations or PEO's. They charge the cost of the employee payroll and add a surchage for
their services.
[edit] See also
Look up payroll in Wiktionary, the free dictionary.
• Cheque
• Payrolling
[edit] Footnotes
1. ^ "Introduction to Payroll Taxes.".
2. ^ Publication 15 (2010), (Circular E), Employer's Tax Guide
3. ^ SSA Publication No. 05-10003, January 2010, ICN 451385
4. ^ SSA Publication No. 05-10003, January 2010, ICN 451385
5. ^ Glossary of Accounting Terms
[edit] References
• Institute of Payroll Professionals official website
• Glossary of Accounting Terms
• Steven M. Bragg. Essentials of Payroll: Management and Accounting.
ISBN 0471264962.
• Independent research, seminars and consulting on multi-country payroll
• Direct Deposit information resource
• Publication 15 (2010)(Circular E) Employer's Tax Guide
• Additional information about Payroll Outsourcing
[hide]
v•d•e
Employment
Break • Career break • Furlough • Gap year • Leave of absence • Long service
Attendance
leave • No call, no show • Sabbatical • Sick leave
35-hour workweek • Eight-hour day • Flextime • Four-day week • Overtime •
Schedules
Retroactive overtime • Shift work • Telecommuting • Working time • Workweek
Living wage • Maximum wage • Minimum wage (Canada • Hong Kong • USA) •
Wages Overtime rate • Paid time off • Performance-related pay • Salary • Salary cap •
Working poor
Anti-work • Dead end job • Job satisfaction • Refusal of work • Wage slavery •
Willingness
Work aversion • Work ethic • Workaholic
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From Wikipedia, the free encyclopedia
Taxation
An aspect of fiscal policy
Policies[show]
Economics[show]
Collection[show]
Distribution[show]
Types[show]
By country[show]
v • d • e
Payroll tax generally refers to two different kinds of similar taxes. The first kind is a tax that
employers are required to withhold from employees' wages, also known as withholding tax, pay-
as-you-earn tax (PAYE), or pay-as-you-go tax (PAYG). The second kind is a tax that is paid
from the employer's own funds and that is directly related to employing a worker, which can
consist of a fixed charge or be proportionally linked to an employee's pay.
Contents
[hide]
• 1 Payroll tax systems
○ 1.1 Australia
○ 1.2 Bermuda
○ 1.3 Brazil
○ 1.4 Canada
○ 1.5 China
○ 1.6 Croatia
○ 1.7 Hong Kong
○ 1.8 Sweden
○ 1.9 United Kingdom
○ 1.10 United States
1.10.1 Income tax withholding
1.10.2 Social Security and Medicare taxes
1.10.3 Unemployment taxes
1.10.4 Reporting and payment
1.10.5 Penalties
1.10.6 Further information
• 2 References
• 3 External links
[edit] Bermuda
In Bermuda, payroll tax accounts for over a third of the annual national budget, making it the
primary source of government revenue.[1] The tax is paid by employers based on the total
remuneration (salary and benefits) paid to all employees, at a standard rate of 14% (though,
under certain circumstances, can be as low as 4.75%). Employers are allowed to deduct a small
percentage of an employee's pay (around 4%).[2] Another tax, social insurance, is withheld by the
employer.
[edit] Brazil
In Brazil employers are required to withhold 11% of the employee's wages for Social Security
and a certain percentage as Income Tax (according to the applicable tax bracket). The employer
is required to contribute an additional 20% of the total payroll value to the Social Security
system. Depending on the company's main activity, the employer must also contribute to
federally-funded insurance and educational programs. There is also a required deposit of 8% of
the employee's wages into a bank account that can be withdrawn only when the employee is
fired, or under certain other extraordinary circumstances (called a "Security Fund for Duration of
Employment"). All these contributions amount to a total tax burden of almost 40% of the payroll
for the employer and 15% of the employee's wages.
[edit] Canada
The Northwest Territories in Canada applies a payroll tax of 2% to all employees. It is an
example of the second type of payroll tax, but unlike in other jurisdictions it is paid directly by
employees rather than employers. Unlike the first type of payroll tax as it is applied in Canada,
though, there is no basic personal exemption below which employees are not required to pay the
tax.[3] Ontario applies a health premium tax to all payrolls on a sliding scale up to $900 per year.
[4]
[edit] China
In the China, the payroll tax is a specific tax which is paid to states and territories by employers,
not by employees. The tax is not deducted from the worker's pay. The Chinese Government itself
requires only one tax to be withheld from paychecks: the PAYG (or pay-as-you-go) tax, which
includes medicare levies.
[edit] Croatia
In Croatia, the payroll tax is composed of several items:
• national tax on personal income (Croatian: porez na dohodak), which is
applied incrementally with rates of 0% (personal exemption), 15%, 25%,
35%, 45%
• optional local surcharge on personal income (Croatian: prirez), which is
applied by some cities and municipalities on the amount of national tax,
currently up to 18% (in Zagreb)
• pension insurance (Croatian: mirovinsko osiguranje), universal 20%, for some
people divided into two different funds, one of which is government-
management (15%) and the other is a selected pension fund (5%)
• health and unemployment insurance (Croatian: zdravstveno osiguranje),
divided into 15% for general health insurance, 0.5% for work-related accident
insurance, and 1.7% for unemployment insurance
[edit] Hong Kong
In Hong Kong, salary tax is capped at 16%[citation needed]. Depending on income, employers fall into
different tax brackets.[citation needed]
[edit] Sweden
In 2010 the statutory Swedish payroll tax is 31.42 percent for the majority of employees.[5] In
addition, employers often pay 5 to 15 percent in fees to social insurances according to
agreements between employers and the union. These additional charges are not taxes, and are not
paid to the Swedish state.
[edit] United Kingdom
In the United Kingdom, pay as you earn (PAYE) income tax and Employees' National Insurance
contributions are examples of the first kind of payroll tax, while Employers' National Insurance
contributions are an example of the second kind of payroll tax.
[edit] United States
In the United States, payroll taxes are assessed by the Federal government, all 50 states, the
District of Columbia, and numerous cities. These taxes are imposed on employers and employees
and on various compensation bases and are collected and paid to the taxing jurisdiction by the
employers. Most jurisdictions imposing payroll taxes require reporting quarterly and annually in
most cases, and electronic reporting is generally required for all but small employers. A video
tutorial is available online from the Internal Revenue Service (IRS) explaining various aspects of
employer compliance.
[edit] Income tax withholding
Main article: Tax withholding in the United States
Federal, state, and local withholding taxes are required in those jurisdictions imposing an income
tax. Employers having contact with the jurisdiction must withhold the tax from wages paid to
their employees in those jurisdictions.[6] Computation of the amount of tax to withhold is
performed by the employer based on representations by the employee regarding his/her tax status
on IRS Form W-4. Amounts of income tax so withheld must be paid to the taxing jurisdiction,
and are available as refundable tax credits to the employees. Income taxes withheld from payroll
are not final taxes, merely prepayments. Employees must still file income tax returns and self
assess tax, claiming amounts withheld as payments.[7]
[edit] Social Security and Medicare taxes
Main article: Federal Insurance Contributions Act tax
Federal social insurance taxes are imposed equally on employers[8] and employees.[9], consisting
of a tax of 6.2% of wages up to an annual wage maximum ($106,800 in 2010) plus a tax of
1.45% of total wages.[10] To the extent an employee's portion of the 6.2% tax exceeded the
maximum by reason of multiple employers, the employee is entitled to a refundable tax credit
upon filing an income tax return for the year.[11]
[edit] Unemployment taxes
Main article: Federal Unemployment Tax Act
Employers are subject to unemployment taxes by the Federal[12] and all state governments. The
tax is a percentage of taxable wages[13] with a cap. The tax rate and cap vary by jurisdiction and
by employer's industry and experience rating. For 2009, the typical maximum tax per employee
was under $1,000.[14] Some states also impose unemployment, disability insurance, or similar
taxes on employees.[15]
[edit] Reporting and payment
Employers must report payroll taxes to the appropriate taxing jurisdiction in the manner each
jurisdiction provides. Quarterly reporting of aggregate income tax withholding and Social
Security taxes is required in most jurisdictions.[16] Employers must file reports of aggregate
unemployment tax quarterly and annually with each applicable state, and annually at the Federal
level.[17] Each employer is required to provide each employee an annual report on Form W-2 of
wages paid and Federal, state and local taxes withheld, with a copy must to the IRS and many
states. These are due by January 31 and February 28 (March 31 if filed electronically),
respectively, following the calendar year in which wages are paid. The Form W-2 constitutes
proof of payment of tax for the employee.[18]
Employers are required to pay payroll taxes to the taxing jurisdiction under varying rules, in
many cases within 1 banking day. Payment of Federal and many state payroll taxes is required to
be made by electronic funds transfer if certain dollar thresholds are met, or by deposit with a
bank for the benefit of the taxing jurisdiction.[19]
[edit] Penalties
Failure to timely and properly pay Federal payroll taxes results in an automatic penalty of 2% to
10%.[20] Similar state and local penalties apply. Failure to properly file monthly or quarterly
returns may result in additional penalties. Failure to file Forms W-2 results in an automatic
penalty of up to $50 per form not timely filed.[21] State and local penalties vary by jurisdiction.
A particularly severe penalty applies where Federal income tax withholding and Social Security
taxes are not paid to the IRS. The penalty of up to 100% of the amount not paid can be assessed
against the employer entity as well as any person (such as a corporate officer) having control or
custody of the funds from which payment should have been made.[22]
[edit] Further information
For detailed information on Federal payroll tax requirements, see IRS publication 15, Circular E.
For information on State payroll tax requirements, contact your state's taxation department
and/or department of labor or equivalents.
[edit] References
1. ^ Bermuda Government Budget Statement 2009
2. ^ Bermuda Government Payroll Tax Guide
3. ^ Government of the Northwest Territories Finance Department Payroll Tax
Information Page
4. ^ Ontario Health Premium Rate Chart
5. ^ Ekonomifakta: Sociala avgifter, läst 12 februari 2010
6. ^ The determination of whether a person performing services is an employee
subject to payroll tax or an independent contractor who self assesses tax is
based on 20 factors. See IRS Publication 15 and the tutorial referenced
above. For Federal requirements, see 26 USC 3401-3405.
7. ^ 26 USC 31.
8. ^ 26 USC 3111
9. ^ 26 USC 3101.
10.^ Note that an equivalent Self Employment Tax is imposed on self employed
persons, including independent contractors, under 26 USC 1401. Wages and
self employment income subject to these taxes are defined at 26 USC 3121
and 26 USC 1402 respectively.
11.^ 26 USC 31(b) and 26 USC 6413(c).
12.^ 26 USC 3301.
13.^ As defined in 26 USC 3306(b).
14.^ State tax rates and caps vary. For example, Texas imposes up to 8.6% tax
on the first $9,000 of wages ($774), while New Jersey imposes 3.2% tax on
the first $28,900 for wages ($924). Federal tax of 6.2% less a credit for state
taxes limited to 5.4% applies to the first $7,000 of wages (net $56).
15.^ See, e.g., New Jersey.
16.^ See, e.g., IRS Form 941. Electronic filing may be required.
17.^ See, e.g., IRS Form 940.
18.^ See IRS Form W-2 Instructions. Note that some states and cities obtain
their W-2 information from the IRS and from taxpayers directly.
19.^ See 26 USC 6302 and IRS Publication 15 for Federal requirements. EFT is
required for Federal payments if aggregate Federal tax payments, including
corporate income tax and payroll taxes, exceeded $200,000 in the preceding
year. See, e.g., [http://www.state.nj.us/treasury/taxation/njit31.shtml New
Jersey requirements for weekly EFT payment where prior year payroll taxes
exceeded $10,000.
20.^ 26 USC 6656.
21.^ 26 USC 6721.
22.^ 26 USC 6672.
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Payroll
As an employer, trustee, or payer, you are responsible for deducting Canada Pension Plan (CPP)
contributions, Employment Insurance (EI) premiums and income tax from remuneration or other
types of income you pay, remitting them to us and reporting them on the applicable slips.
Top of Form
• Eliminating waste and errors to ensure that that payroll services are cost-
effective and efficient.
• Balancing the dual roles of transaction processor and customer service
provider.
• Attracting, retaining and developing highly competent payroll professionals.
• Maintaining compliance with changing government regulations.
• Determining what payroll functions, if any, to outsource
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performance by aligning processes with technology to meet your Benefits strategy. Our Payroll
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