How to Calculate Payroll?

The calculation of payroll is a highly regimented process. This calculation should be followed meticulously, to ensure that there are no mistakes in the amount of net pay issued to employees, or taxes paid to the government.


The calculation steps for payroll are as follows:

  • Notify employees. Tell employees to complete their timesheets by the close of business on the last day of the payroll period. Otherwise, pursuing employees to complete their timesheets¬†will delay the payroll.
  • Collect timesheets. Obtain timesheets from all employees. This information may be located in an on-line timekeeping system.
  • Review and approve timesheets. Review all timesheets for completeness, and then forward them to the relevant supervisors for approval. Overtime in particular should be approved, since it is 50% more expensive than regular pay.
  • Enter hours worked. Enter this information if the hours worked information is collected manually. Otherwise, it may already be in the system.
  • Enter wage rate changes. Enter all authorized changes into the payroll system for wage rate alterations, withholdings, and deductions. In particular, ensure that all deductions have been entered for adjustments to gross wages for tax purposes, since they impact the amount of payroll taxes paid.
  • Calculate gross pay. Multiply wage rates by the number of hours worked to arrive at gross pay.
  • Calculate net pay. Deduct all authorized withholdings and pay deductions from gross pay to arrive at net pay.
  • Review. Print a preliminary payroll register and examine the gross pay, deductions, and net pay for each employee, to ensure that it is correct. If it is not correct, revise the prior entries and run another preliminary payroll register.
  • Pay employees. Cut payroll checks and remittance advices. Also print a final payroll register and archive it. Have an authorized person sign the checks. Alternatively, issue electronic payments to employees.
  • Remit taxes. Forward all applicable payroll taxes to the government by the mandated due date.
  • Distribute pay. If checks were cut, retain them in the company safe and distribute them on pay day. An extra control is to require a proof of identification before handing a check to an employee.