Tracking payroll transactions

Payroll systems

3 main ways to track payroll:

Manual payroll
- Least common method
- You do all the work to prepare the payroll by hand
Outsourcing payroll
- The business pays someone else to do everything—from the timesheets, to bookkeeping, to the taxes
Payroll software
- Software varies by the product and plan a business chooses
- Assists with tracking all the compliance concerns, local, state, and federal taxes, updates, benefits, and healthcare components

Employee-related costs and benefits

Gross pay
- Gross wages
- The total amount earned by an employee before any deductions
- The full compensation that an employee is entitled to based on their salary or hourly wage, without considering any withholdings or deductions.
- Regular wages as well as any additional earnings such as bonuses, commissions, or overtime pay
Net pay
- Take-home pay
- The amount of income that an employee receives after deductions—such as taxes, insurance premiums, and retirement contributions
- The actual amount that the employee receives in their paycheck
Paid time off (PTO)
- The designated time that an employee is granted off from work while still receiving their regular pay.
- Various forms of leave, such as vacation days, sick leave, personal days, and holidays
- This is considered a benefit and isn’t offered in every job

Federal tax withholdings

Taxable wages
- Earnings from which an employer must withhold taxes and does not include non-taxable wages such as employee contributions to a health savings account
FICA - Federal Insurance Contribution Act
- Taxes going into Medicare and Social Security.
- Paid by both employees and employers
- An amount on the paystub indicates the portion the employee contributed.
  - OASDI/Social Security - Another term for Social Security. Stands for old age, survivors, and disability insurance tax. This is part of FICA
  - HI (Hospital Insurance) or the Medicare Tax - another part of FICA
FUTA - Federal Unemployment Tax Act
- A payroll tax that only the employer pays
SUTA - State Unemployment Tax Act
- A tax that only the employer pays that funds state-administered unemployment programs.
SDI - State Disabilities Insurance
- A less common tax, only used in some states, it is a payroll tax that funds employees financially if they are injured on the job.

Reading a paystub

Wage garnishment

A legal procedure in which a person’s earnings are required by court order to be withheld by an employer for the payment of debt.