As easy as it might seem, payroll computation errors are often the cause of failure in businesses. From misclassifying employees to miscalculating pay, such mistakes can cause companies to pay 70 times more than the money they owe to an employee.
Payroll computation is a highly regimented process. You need to determine the gross pay and subtract the deductions and taxes to arrive at net pay. That’s why computation must be done meticulously. After all, a smooth payroll process is like oxygen to your business. And just by devoting time to learning the process beforehand, you will be able to avoid long-term problems and lawsuits in the future.
Fortunately, we’ve come up with a short guide and tips on how to calculate payroll. Read on to learn about these tips and guidelines to save your business from payroll troubles.
Factors to consider before calculating payroll
1. Trainee, apprentice, or eligible for a supporting wage?
Before payroll computation, you must first identify whether your employee is a trainee, apprentice, or eligible for a supported wage. A trainee is an employee that receives education and formal training contract for the specific job. An apprentice is the same, but the only difference is instead of completing an educational program, he starts working from the beginning while earning money and building skills. Lastly, employees eligible for a supported wage are those with disabilities that affect their productivity.
Take note that not all your employees apply to any of the three. If they do not belong to any type, they will receive normal pay without any changes to their salary.
2. Classification in the job ladder
Classification may differ from every industry. But for construction companies, there are about nine levels in the job ladder. The highest level is reserved for the construction manager whose role is to oversee the entirety of the project. On the other hand, construction foreman is placed at the lowest level. He is the one who oversees the project on-site and tracks the worker’s timecard.
3. Part-time, full time, or casual?
The type of employment affects an employee’s salary. You can simply distinguish them by identifying their ordinary hours of work in a week.
- Full-time – 38 or more hours
- Part-time – less than 38 hours
- Casual – no guaranteed hours
4. Employee’s age
The final step before payroll computation is knowing the age of your employee. This step only applies to an employee whose age is below 21.
Easy steps to payroll computation
1. Prepare the timesheets.
First, notify the employees to complete their timesheets by the payment cutoff. Remind them that not completing their timesheets will delay the payroll. Also, make sure to review all the timesheets once you obtain them. Review the completeness and forward them to their supervisors for approval.
2. Enter data and compute payroll.
If you do not have a payroll system, make sure to enter hours worked manually. Otherwise, it is already stored in the system. Make sure to enter all authorized wage rate changes for rage alterations, deductions, and withholdings. You must also enter all deductions for adjustments to gross wages.
Next, to calculate gross pay, you must multiply wage rates by the number of hours worked. To make it simpler:
Gross pay = Wage rate x Number of hours worked
Lastly, you need to deduct all authorized withholdings and pay deductions from gross pay to come up with the net pay.
Net pay = Gross pay – (Authorized Witholdings + Pay Deductions)
3. Don’t forget to review it.
Make sure that you don’t miss any errors by reviewing the gross pay, deductions, and net pay for each employee. But if there are errors, revise the prior entries and review it again.
Make your computation easier
There is a higher chance of error when payroll computation is done manually. To avoid that, your construction business must invest in payroll software. From calculating to withholding taxes, the best construction payroll software will help you avoid the most common payroll mistakes — like miscalculation and misclassifying employees. You can also save ample time and money by automating your computation.
Just remember that by choosing the right payroll software for your business, you are one step closer to a stress-free and error-free payroll computation!
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