Payroll is the processing of payments to employees by a business. It includes distributing employee payments via direct deposit or paper check as well as paying all federal and state taxes on behalf of each employee. It also entails keeping detailed records on all payments, taxes and employees. At the end of the year, payroll data is used to issue a tax statement to each employee called a W-2 that provides them with their annual income information and all deductions for taxes and other withholding.
Sounds complicated, doesn't it?
That's why many business owners choose to have a payroll service handle their payroll processing.
The payroll process starts when an employee fills out a W-4 form. This form tells the business about how the employee should be taxed. The information from the W-4 form is used to determine how much the business needs to withhold from the employee's gross pay for FICA taxes (Social Security and Medicare), federal and state taxes (collectively called payroll taxes). After taxes, a business might withhold additional money from the employee's pay for things like medical insurance plans, retirement plans, union dues and so on.
Payroll processing also tracks additional details about the employee's financial profile with the business such as earned paid time off, accrued sick leave, tips, royalties and other details as required by law. Each employee has a payroll record of all the money paid out, accrued time off, taxes and deductions for each pay period and year-to-date. This record supplies the information necessary for the business to issue W-2 statements at the end of the year.
The record of all these calculations for all employees as a group is called a payroll register. This shows all the amounts of salary, wages and taxes paid out for a given pay period along with totals for the year. This is essential for a business owner to see how much they are paying out in payroll total for the operation of their business at a glance.
BIG Accounting and Tax Services can help! We have the expertise and experience to process your payroll. We can handle every step of the process from figuring out how much to tax an employee based on their W-4, maintaining each employees payroll record, to processing W-2 statements and maintaining the payroll register so you know exactly how much you're spending on payroll at any given time. Let's get started today!