Proposed Extension of Employee Retention Tax Credit | Complete Payroll

You wouldn’t buy a new front door for your house without first measuring the size of the door frame to make sure it fits. Similarly, most accountants and bookkeepers would encourage you to calculate the annualized costs of paying each employee (and making sure you can afford them) before extending them a formal offer.

Fortunately, the process is pretty simple.

Calculating payroll for hourly employees

For hourly employees, you need to collect time records, which can be produced through time sheets or time clocks. The supervisor of the hourly employee typically reviews the time records for each pay period and submits them to the bookkeeper or payroll processing company. 

Once you have the time records in hand, then you can calculate payroll. For example, if a nonexempt employee works a standard 40-hour week, you would calculate gross pay like this...

40 hours worked x $14 per hour = $560

Let’s say that same employee worked 45 hours the following week. In that instance, you would calculate gross pay like this…

40 hours worked x $14 per hour = $560

5 overtime hours x $14 per hour x 1.5 overtime pay rate = $105

$560 regular pay + $105 overtime pay = $665 regular pay

If the employee is not exempt from the Fair Labor Standards Act (FLSA), overtime must be paid for any hours worked over 40 during a standard, seven-day work week.

Calculating payroll for salaried employees

Calculating payroll for salaried employees is even simpler than for hourly employees. For a salaried employee, all you need to know is their base salary and the number of pay periods in a year.

For instance, if an employee has a base salary of $40,000 and gets paid twice a month, their calculation would be:

$42,000 ÷ 24 pay periods = $1,750 gross pay per pay period

Remember, if you pay your employees biweekly, you're paying them 26 times a year (52 weeks ÷ 2 = 26 pay periods). Therefore, an employee with the same salary that's paid biweekly would actually look like this:

$42,000 ÷ 26 pay periods = $1,615.38 gross pay per pay period

Employment taxes

In addition to hourly wages, salaries, and bonuses, you'll also owe taxes for each employee. These taxes include:

• Social Security/FICA: Currently 6.2% on the first $142,800 of salary
• Unemployment/FUTA: Currently 6% on the first $7,000 of salary
• Medicare: Currently 1.45% with no salary cap
• Workman's Compensation: Varies depending on the category of your employee, with clerical at about 0.3% of salary and manufacturing at about 7.5% of the salary

Benefits for employees

Basic salary and employment taxes are a minimum. Benefits are offered at the employer's discretion, but in most cases, you’ll need to offer at least some benefits to attract and retain quality employees.

A typical benefits package for a $50,000 salaried employee includes life insurance, health insurance, and some dental coverage. Other benefits may include long-term disability insurance, dependent care assistance, tuition reimbursement, and retirement plans (IRA, 401-K, etc.).

Putting it all together

With a robust benefits package, the total employee cost is somewhere between 25-40% of an employee’s salary. That would mean an employee with a $50,000 salary would cost the business somewhere between $62,500 and $70,000. 

For more information or to ask a question, get in touch with us. We’d love to help you out!