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Simply put, payroll is the total amount of wages and salaries paid to employees by a company. While the term can be summed up in a single sentence, the work behind payroll can be extensive and a little confusing at times.

Many companies pay their employees in different ways. Some employees are paid salary (a set amount of money per year, divided into equal amounts for each pay period), some are paid hourly, and others are paid by the numbers of goods produced or items sold. Each employee’s payroll must be calculated and their paychecks distributed, depending on the job they do and the way they are paid.

Payroll accountants are responsible for calculating and keeping track of employee’s hours and multiplying that by their pay rate. This gives an accountant the gross income for the employee. They then deduct federal and state taxes, medical insurance, retirement contributions, and other withholdings from the gross amount before issuing a check to employees, which then becomes the net pay.

Payroll specialists and accountants are also responsible for identifying employers and employees by a federal code and keeping a running tally of total income and deductions for the company’s fiscal year.

When a business is in its early stages, keeping enough cash to pay all employees is a high priority, and often a challenge. Even if the business is not yet profitable, employees must still be compensated for their time. Often times when small businesses reach a level of profitability, they outsource payroll services in order to save time and maintain accuracy in their records.


Visit more posts in our Payroll 101 series:

The 1099-Misc Explained

Setting Your Own Salary as a Business Owner

The W-2 Explained

How Often Should You Pay Employees?

What are the Costs Associated with Payroll?

5 of the Best Benefits to Offer Employees

The Power of the Employee Pay Stub


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