Payroll components are all the various elements related to an employee’s pay in the payroll process, including deductions. Payroll components can differ from country to country, so it’s best to check local laws and regulations before starting the process.
What are the different payroll components?
Payroll consists of several aspects that directly influence the employer’s gross income. To arrive at that number and run payroll compliantly, keep in mind the following elements:
Salary: One of the main components of payroll is the employee’s salary (both net and gross pay).
Overtime: Employers must compensate employees for extra hours worked unless the employee earns a fixed salary and isn’t entitled to overtime.
Bonuses, commissions, and benefits: Employers can add additional compensation to an employee’s pay as a reward or incentive. These can include bonuses, meal or wellness stipends, commissions, and other benefits.
PTO: Paid time off as well as other types of compensated leave (sick leave, annual leave, parental leave, etc.) can also impact an employee’s gross pay.
Expense reimbursements: If employees pay for business expenses using their own money, they can usually receive reimbursement. Each company will likely outline what qualifies for reimbursement, which can include transportation, meals, accommodation, training, and so on.
Contributions to Social Security and Medicare: Mandatory social contributions are important when running payroll and vary from country to country.
Aside from the above components, various deductions also impact an employee’s gross pay. A few deductions to note are:
- Income tax on federal, state, or city levels
- Employee Social Security contributions to pension, health insurance, etc.
- Voluntary deductions for union membership, private health insurance, etc.
- Additional deductions or wage garnishments for child support or loans
What else do you need to run payroll?
To run payroll in the United States, employers will also need details from the employee. Be sure to collect:
- Tax identification numbers: Every business with employees is required to have a federal tax ID number (or employer identification number) from the IRS.
- Employee information and tax documents: Employers will need specific forms from employees before paying them. Forms can include W-4, I-9, and W-9.
- Employee salary and wage information: For employees, salaries, overtime pay, PTO, tips, bonuses, tuition reimbursements, and commissions are all needed to calculate gross and net pay.
- Documentation for health insurance and retirement plans: Documents detailing SEP or IRAs certify the correct deductions and permit employers to withhold money from the employee’s pay.
- Employee bank information: To make direct deposits into an employee’s bank accounts, businesses need each employee’s:
Bank routing number
- Worker’s compensation insurance: Most require employers to purchase worker’s compensation policies to cover work-related injuries and illnesses.