Managing payroll can be complicated, even for the experienced employer or Human Resources professional.
Payroll is an integral part of the functionality of a business because it is how employees are paid for their work. It’s crucial for business owners and employees alike to clearly understand their payroll system to ensure proper execution, especially in a small business. Payroll errors can frustrate employees and cause financial stress. Staying on top of payroll management and proactively answering employee’s payroll questions can go a long way toward cultivating company culture and loyalty.
This list of frequently asked payroll questions and answers is designed to prevent confusion, make managing payroll easier, and put employers and employees at ease throughout the process.
What is included in my paycheck?
Your paycheck will present your net pay, otherwise known as take-home pay, for the relevant pay period.
Net pay is based upon gross pay (the employee’s wages earned before deductions), minus any deductions for paying taxes. Those include federal income tax, state and local taxes if applicable, and Social Security and Medicare (FICA). Other deductions may apply as well, such as health insurance, life insurance, or 401(k) contributions. The paycheck stub lists employee wages and deductions for the employee’s reference.
How is my pay calculated?
Depending on whether you are a salaried employee or hourly, your paycheck will either be a set amount or determined based on the number of hours you worked during the pay period.
A paycheck calculator can be helpful in determining net pay and to calculate payroll taxes.
What is the difference between exempt and nonexempt employees, and which one am I?
Exempt employees are exempt from Fair Labor Standards Act (FLSA) regulations and are not eligible for overtime pay. Typically exempt employees are salaried and perform more administrative or executive duties.
Nonexempt employees are typically paid hourly, usually for manual or technical job duties. They are covered by FLSA regulations and are eligible for overtime pay. If you are a nonexempt employee, this means you must earn at least the federal minimum wage per hour.
All employees covered by the FLSA must receive overtime pay for all hours worked in excess of 40 in a workweek. This is typically paid at 1.5 times the employee’s regular hourly rate.
What taxes and deductions are being taken out?
Because businesses are subject to federal, state, and local taxes, employers withhold taxes. These deductions include payroll taxes and income tax withholding.
Payroll deductions are determined when employees complete their tax forms upon hiring.
Can I change my withholding amount?
Payroll deductions may be modified with an official payroll adjustment by the employer. To accomplish this, employees must complete a new Internal Revenue Service (IRS) Form W-4 and submit it to the employer.
How often will I be paid?
Most companies run payroll weekly, bi-monthly, semi-monthly or monthly. Employees are most often paid via direct deposit into a bank account or with a physical check. The employee’s bank’s processing speed may impact which day the money becomes accessible.
What about time off and holiday pay?
The FLSA does not require employers to pay employees for time they have not worked, including vacations or holidays. Still, your employer may offer paid time off that was agreed upon at the time of hire. Many employers also offer holiday pay or other supplemental pay as specified in employee contracts.
How can I access my pay stubs?
If you are paid through direct deposit, you will likely have access to digital pay stubs through your company’s online payroll software system. Payroll software programs allow for easy access to digital pay stubs and simplified payroll processing.
If you are paid with a physical check, your pay stub will be attached.
What benefits are offered and how are they taxed?
Employers may offer benefits like health insurance, which are taxed accordingly when they process payroll.
In addition, an employer may provide fringe benefits, like the use of a company vehicle. These benefits may also be subject to income tax withholding and employment taxes based on the fair market value of that item.
What about benefits like workers’ compensation and other health plans?
If you become ill or injured on the job, you may be eligible for workers’ compensation benefits to cover the cost of medical care and lost wages. Contact your state’s workers’ compensation board for more information.
If an employer pays for a health insurance plan for employees, these payments are not subject to Social Security, Medicare taxes, or federal income tax withholding because they are not wages. This exclusion also applies to qualified long-term care insurance contracts.
However, the cost of health insurance benefits must be included in the wages of S-corporation employees who own more than 2% of the corporation, and taxed as such.
What is my company’s EIN, and where do I find it?
An EIN is a federal employer identification number required for a company to pay taxes to the federal government. A business must apply for and receive this number through the IRS to fulfill their tax obligations.
What tax changes should I be aware of for 2023?
According to the Social Security Administration
- The Social Security tax wage base for employees increased to $160,200.
- For wages below $160,200, the tax rate is still 6.2%.
- Medicare tax also applies to all wages at 1.45% for employees and employers.
Employment taxes are the responsibility of the employer, who is obligated to report all wages and other compensation paid.
For small business owners, the payroll process doesn’t have to be complicated. By taking a proactive approach toward common payroll questions and concerns, employee payroll can run smoothly and seamlessly. Furthermore, improving the payroll process can improve employee satisfaction.
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