Category: Accounting

How to Do Payroll by Hand

Your employees must get paid for the work they do. Simple as that. Handling payroll differs from company to company, but there are many well-recognized calculation methods. For some small businesses, doing manual calculations is the only option.

Manually calculating an employee’s paycheck is based on whether he or she is salaried or hourly. To determine an hourly employees’ pay by hand, you must examine their time-sheets or punches for a week, or two weeks. To calculate a salaried employees’ pay, you can use an annual salary calculation.

Weekly Calculation

Let’s say your full-time hourly employee, Glenn, makes $15 an hour. You pay him bi-weekly. To measure his pay, your calculation should look like this:

40 hours x 2 = 80 hours. 80 x $15/hour = $1,200. This is his gross pay.

Full-time hourly employees who work more than 40 hours a week must earn overtime. Overtime in the U.S. is equal to one and half times an employee’s regular rate of pay. If Glenn works 50 (or ten extra hours both weeks) hours each week, instead of 40, this is what your calculation should look like:

Pay his regular rate from above, then determine overtime. 10 x 2 = 20 hours. 20 x $22.5/hour (15 x 1.5) = $450. This is also gross pay, albeit overtime

Annual Calculation

Your full-time salaried employee Linda makes $56,000 annually. You pay her semi-monthly (24 pay periods in a year). Determining her pay is a simple calculation, based on your company’s pay schedule. It should look like this:

$56,000 / 24 = $2,333.33. This is her gross pay.

Net Pay

The above scenarios only measure an employee’s gross pay. Once you withhold the proper federal, state, and local taxes, you’ll end up with employees’ net pay. For 2019, an employee’s withholding taxes are:

-A 6.2% Social Security tax on the first $128,700 of wages

-A 1.45% Medicare tax on the first $200,000 of wages

-A 2.35% Medicare tax above $200,000+

How to calculate payroll

The calculation of payroll involves the determination of gross pay, followed by the subtraction of deductions and payroll taxes to arrive at net pay. 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 paychecks 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.

Paperless Payroll

As you can see manual payroll calculations are quite labor-intensive. To reduce time and risk for error, you can simplify the process by switching to a paperless payroll. The benefits of going paperless include:

Electronic quarterly payroll tax returns.Quick access to real-time payroll data for proper payroll processing.Employees have self-service option to manage payment preferences and view pay statements.Customizable security levels to protect data.Custom reporting capabilities.Complete integration with benefits administration and other voluntary deductions.

The math involved in manual payroll calculations is extremely time-intensive. It requires constant attention and also increases the risk for errors and late payments to government agencies. Adopting a paperless payroll process will make payroll easier, freeing up time and providing self-service options for employees when they need information.

Calculate Tax Withholding

Step 1

Calculate each employee’s tax withholding individually. Review the employee’s W-4 form to identify the number of allowances claimed. Identify the current deduction amount per allowance as defined by the Internal Revenue Service each year. Multiply the number of allowances by the exemption amount. For example, in 2012, the exemption amount equals $73.08 per allowance for weekly payroll processing. If the employee claims 2, deduct $146.16 from the employee’s gross pay.

Step 2

Refer to the current IRS withholding chart for the current tax year to determine the employee’s withholding amount. Find the appropriate payroll cycle and marital status on the chart, and identify the withholding amount based on the employee’s taxable income. The pay frequency may be weekly, bi-weekly, semi-monthly or monthly. As an example, an employee with $310 in taxable earnings for a week in 2012 would have 10 percent tax withheld on all earnings exceeding $156, or $15.40.

Step 3

Calculate the Social Security and Medicare withholding for the pay period. Check the current tax rates according to the Internal Revenue Service tax publication for the year. In 2012, the Social Security withholding equals 4.2 percent of all earnings up to $110,000. The Medicare percentage for 2012 is 1.45 percent of all earnings. Reduce the employee’s net pay by the tax withholding calculations.

Step 4

Calculate and deduct any other employee contributions such as health insurance premiums, 401(k) contributions or other deductions

Benefits of running payroll manually

There are some benefits to running payroll manually, especially for small businesses with only a few employees.

1. No payroll software expenses

Payroll software can cost your business anywhere between $10 and hundreds monthly, depending on the software, the number of employees, and the features you choose.

You can run a high bill with payroll software. Sometimes there’s just no room in the business budget for another expense.

There are free payroll software options, such as Payroll4Free, but its paycheck calculation features can be found elsewhere.

2. You’ll understand payroll inside and out

You’ll hone your payroll processing skills by doing payroll manually.

Your intimate understanding of how to do payroll will continue to serve you even when you’re not handwriting the checks. Business owners who use payroll software should regularly check their employees’ earning reports to spot errors.

3. It’s manual payroll, not solo payroll

Calculating payroll taxes deters most business owners from doing their own payroll.

If you choose to do payroll by hand, you can still access trusted sources online to help with difficult payroll tax calculations.

ALL THINGS BOOKKEEPING

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If you are behind in your bookkeeping and need an experienced person to stand by you and assist you with getting things back on track – Then look no further. We will assist you without breaking the bank

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Bookkeeping & Admin services for any small, medium or large organisation on a contractual basis. Outsource Your Bookkeeping and Admin Services to us and save. Free up valuable time to focus on generating revenue instead of the time consuming admin. Leave that up to people that will put your needs first and ensure you have the correct information to run your business.

Bookkeeping – Bulk catch up as well as monthly maintenance.

Maintenance of debtor’s, suppliers and general ledgers (including invoicing & debt collection), as well as subsidiary records.

SARS submissions VAT/UIF/PAYE/EMP201/EMP501

Management accounts – Stay in the know. We set up, manage and report on your monthly financial management requirements.

Admin: (Full admin function or selected items)

HR Functions – Payroll, wages and salaries, staff contracts etc.

Invoicing

Debt collection

Elimination of waste in the way you do business taking a good look at your processes and procedures.

Difference between Bookkeepers and Accountants

There is often a misconception that bookkeeping and accounting are the same thing. While they both work to assist you with your finances, there are some important distinctions between the tasks of a bookkeeper and an accountant. From the outset, it is important to understand that both bookkeepers and accountants are integral parts of your business. While their tasks can sometimes overlap, there are definitely certain aspects of your business that you would specifically entrust to an accountant, and others that you would give to your bookkeeper.

In simple and very general terms, a bookkeeper will likely be the person that assists you with the ongoing financial recording and transactions that keep your business running smoothly. Your accountant, on the other hand, will be the person who analyses the data produced by your bookkeeper, reports on it, and is best suited to give you financial advice. Your accountant will also have a strong understanding of your taxation requirements, and will be best able to assist in that area.

Some tasks that are regularly undertaken by your bookkeeper can include:

Processing invoices, receipts, payments, and other financial transactions

Processing and maintaining your payroll system

Preparing initial financial statements

Reconciling accounts and preparing reconciliation reports

Managing your accounts receivable and accounts payable, i.e. amounts owing by debtors, and amounts owing to creditors

Calculating GST

Preparing and lodging your BAS

Designing, establishing and reviewing accounting systems

There are a wide variety of other tasks that a bookkeeper can undertake, and much like the tasks outlined above, they are generally related to the ongoing maintenance of your financial records.

While an accountant will also be qualified to assist you in these areas, it is important to be aware that there is likely to be a substantial difference in fees charged by bookkeepers and accountants. In order to best utilise your budget, extensive consideration into which tasks are to be delegated to a bookkeeper or an accountant is advised.

Things to Keep in Mind When Hiring a Bookkeeper

Hiring A Bookkeeper

When you make the decision to hire a bookkeeper, It’s important to feel confident that you’ve made the right choice, be it a local in-person bookkeeper or an online service. Knowing what to look for when going through the hiring process could be the difference between success and failure. You want to choose someone who is professional in every respect of the bookkeeping process, and whose style suits your business needs. Let’s take a look at 6 aspects of hiring a bookkeeper that we need to keep in mind.

Detail-Oriented

A good bookkeeper will be detail-oriented and will take the time to get to know the specifics of your business including the products or services you offer, the typical profile of your customers, and the flow of your financial transactions in order to organize your books in a way that is most helpful for your type and scale of business. The structure of every small business is different and a good bookkeeper should be able to understand your structure and format the books accordingly. For instance, If you have a service-based business, like a hair salon or a landscaping company, the number of customers you have come in on a monthly or annual basis, the size of those accounts, and the potential need to keep a running list of accounts receivable or payable (requiring use of the accrual method of accounting) will be a lot different than the same variables in a business that mostly sells physical wares, like a furniture store. If you run a gym that sells memberships and exercise class passes, and also contains a boutique with workout clothes and accessories, you’re trading in both, and it would likely be in your best interest to separate out the type of your transactions to get a an optimal financial snapshot for each area of your business. A good bookkeeper will understand this and be able to organize transactions with your specific business needs in mind.

Experience Level

Balancing experience level and expense is probably something you’ll encounter, just as you would for any other new hire. In some cases you don’t necessarily need the most experienced bookkeeper, If your finances are fairly simple, it may make sense to go with someone who demonstrates good knowledge of your industry, and who has certification or other experience in bookkeeping, but who may not have as many years in practice behind them. A candidate who is newer to bookkeeping and is bright, motivated and willing to put in the hours to get more hands-on experience with your bookkeeping needs could be ideal for a new business, or those with budget constraints. If your industry require a very seasoned bookkeeper or someone with very specialized industry knowledge and experience, you may have little choice but to be willing to pay the associated price in order to maintain your books to the highest of industry standards.

Software and Tracking Systems

Ask upfront whether a bookkeeper uses software like Quickbooks or Xero. If they don’t, you may want to consider moving on to a different candidate as software systems, online services, and other digital tracking systems is the industry standard, and while you can still keep your books on written ledgers it is often the least desirable option. If you’ve been keeping your books using a particular software for bookkeeping and you like it, ask if the bookkeeper is familiar with this system and how they would continue using this software moving forward. Staying with the same software has obvious benefits like maintaining access to your old data and not having to pay the cost of having the bookkeeper transfer it to their preferred system. Furthermore, if you aren’t sure how long you’ll be using a certain bookkeeper, it doesn’t make sense to do a complete system switch. If you are starting fresh with a new business you may need to do some research on the different software options ahead of time

Accessibility and Accountability

As a small business owner, you probably know that customer service is key to standing out from the crowd in your industry and attracting and retaining customers. It’s no different when you’re doing the hiring. A good bookkeeper should provide you with multiple ways of contacting them, for both time-sensitive and non-urgent matters as you will need to know that you can rely on being able to contact them when needed. This is also true for needing your bookkeeper to be accessible to your accountant, especially during tax season. So be sure and ask potential bookkeepers about their availability day-in and day-out and during busy seasons like tax season.  With your bookkeeper collecting all your daily financial data and your accountant analyzing that data and making sure your taxes are done right, together they can keep your business running smoothly. By picking a bookkeeper who knows how to maintain the right level of communication, you will rest assured knowing that your finances are in good standing. One last point, you should be sure to keep your bookkeeper aware of your business’ key dates: payroll days, tax return deadlines, and any meetings you have on the calendar with your accountant to give your bookkeeper what they need to be able to perform their job effectively and efficiently.

skills you have that will make you a good bookkeeper

Bookkeeping is more than being good with numbers. It encompasses many soft skills and other abilities which wouldn’t spring to mind when you think of accountancy or bookkeeping.

Maths

OK, we know we said it’s more than being good with numbers, but being good with numbers is still the most important part of being a good bookkeeper. Numerical skills are essential when bookkeeping and accounting for obvious reasons, whether it be to balance the books or add up the total sum of a series of transactions. Addition, subtraction, multiplication and division are all skills that you should have, along with the confidence to use your ability in these areas.

Organisation

Your employers and clients will set you deadlines and you also need to work to Tax Return and VAT deadlines, as well as Financial Year End deadlines. Organising your time around these will not just shape your career, but how competent you are and how potential clients/employers view your services. You will need to plan your months and years ahead and how you work will depend on these tight deadlines.

Communication

Bookkeepers need to present information in a professional manner, and a way that is understandable to clients both in person and via electronic communication. Depending on the size of the organisation you work for, you will also need to communicate effectively with other people in your department and be able to express yourself to your team and colleagues in other departments.

Attention to Detail

You are dealing with a company/client’s financial data and so you need to ensure all the data you are logging is accurate down to the last penny. This is so you can monitor financial transactions and make sure financial policies are being adhered to. This will ensure your career isn’t called into question and you are following all moral obligations and measures of integrity.

Bookkeeping Tips For Business Owners

Bookkeeping can be a struggle for business owners. While some business owners have the budget to hire a bookkeeper, or engage an accounting firm to handle their bookkeeping, many simply don’t have the funds to do so. As a result, they end up doing the bookkeeping themselves (and not always well).

Avoid Using Excel Spreadsheets

Reconciling is a huge part of bookkeeping, and trust us when we say that you can’t do that in an Excel spreadsheet. While onboarding clients, we’ve seen a lot of  “bookkeeping” being done in Excel. But tracking expenses in a spreadsheet isn’t bookkeeping.

Use and Create the Right Accounts

Some bookkeeping softwares let you create an endless number of accounts, and it can make things messy, especially when it comes time for your accountant to do your year-end. Examples of unnecessary accounts that we’ve seen include: bank accounts that don’t exist, “miscellaneous” accounts that don’t provide any information, and sales tax accounts that are not needed.

Categorize All Expense Transactions

Every single expense incurred by your business needs to be categorized appropriately. We’ve seen business owners put all expenses (or the majority of their expenses) into uncategorized expenses and tada! Their bookkeeping is done!

Categorize All Revenue Amounts

Just like with your expenses, you need to categorize all of your revenue amounts correctly. This gets overlooked a lot, and it’s important because different revenue sources are taxed at different rates.