How to Calculate Payroll

How to Calculate Payroll

Being able to calculate payroll correctly is crucial for businesses. Not only is it important to ensure you pay employees correctly, and therefore maintain a happy and motivated workforce, but you also need to ensure you pay taxes or take care of anything else that should be deducted at source. Once you are aware of these deductions and other things such as benefits or allowances, you can begin to calculate your payroll.

This guide will look at how to calculate payroll for hourly paid employees, and those who earn as a salary.

Hourly Payroll

The first step is to collect timesheets for all the employees you need to pay. You might have this information physically written down, or it may be on a computer system. Most modern businesses prefer the latter as it helps to make payroll more accurate and avoids ambiguity or dispute.

Usually, supervisors or managers of each department will check timesheet records before forwarding onto the bookkeeper of the company or the manager. When they have the timesheets, calculating payroll is straightforward.

Payroll Calculation

To work out the gross pay an employee will receive, simply multiply their hourly wage by the number of hours worked over the relevant payroll period. To finalise payroll, you then apply any necessary deductions, such as tax and national insurance, which gives you the net wage. All of this information is then placed onto a payslip and the payroll is finalised.

Remember that if employees are entitled to double time, for example, for working additional hours, or they receive a premium for working on a Sunday or before/after a certain time, this needs to be calculated and added to the payroll as a separate entry. All monies to be paid should be broken down line by line.

Salaried Payroll

Working out salaried payroll is easy, as you simply divide the salary by the number of payroll periods your business have (12 if it’s monthly, 52 if weekly, for example) to come up with your figure. Some payroll systems will still require you to enter the hours worked. Full time hours are usually taken as 169 a month in the UK, so you’d work out your monthly entry thus.

A person earns £30,000 per year, paid monthly.

£30,000 divided by 12 = £2500. £2500 divided by 169 = £14.79, so if you needed to enter this salary as an hourly expression you’d simply multiply the hours worked (169) and the rate (£14.79) as you had done before.