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Payroll

# How to calculate payroll: A Guide

If youβre a small business owner with employees, running payroll is an important step in your operations. In this article we are going to explore how you can calculate payroll.

## Calculate employee's gross pay

You can determine an employeeβs gross pay using their pay rate and your scheduled pay periods. Most businesses will pay employees on a schedule. Most commonly, pay periods are weekly, fortnightly, or monthly.

 Hourly To calculate an hourly employeeβs gross pay, multiply their hours worked in the pay period by their hourly pay rate. The formula follows: Hourly rate x total hours worked in the pay period = gross pay Letβs look at an example. Say an employee makes \$15 an hour. Their employer pays them every two weeks. The employee worked 35 hours the first week and 30 hours the second week for a total of 65 hours for the pay period. So the employeeβs gross pay is \$975. Salaried To calculate a salaried employeeβs gross pay, divide their annual salary by the number of pay periods in the year. The formula follows: Yearly salary/number of pay periods in year = gross pay Letβs look at an example. An employee makes \$60,000 a year. Their company pays employees every two weeks for a total of 26 pay periods. So the employeeβs gross pay is \$2,307.69.

## Factor out pre-tax deductions

After determining gross pay, youβll need to factor out deductions. These are tax deductions, but other pre-tax deductions may also apply. Some common pre-tax deductions include:

## Deduct taxes

Once you make pre-tax deductions, the remaining pay is taxed. To calculate PAYG withholding tax you can use the ATO tax calculators. You will report the amount withheld on the monthly, quarterly or annual activity statement.

You can also use a variety of free tools and resources made available by QuickBooks, like our income tax calculator.

Deduct the calculated amount from the employeeβs gross pay. After that comes superannuation and deductions.

The business submits both the employeeβs and the companyβs superannuation contributions to the superannuation funds within the timeframes dictated by the ATO or the relevant award under which the employee is paid. Whilst the ATO has minimum quarterly contribution requirements, the award may stipulate monthly contributions.

## Voluntary deductions

Once you make an employeeβs pre-tax and tax deductions, the next step is to make any other post-tax deductions from the remaining wages. These may include:

## Determine employeeβs net pay

After all taxes and deductions, the remaining amount is the employeeβs net pay. Net pay is how much the employee will take home on payday.

To get the most out of your payroll software, choose a system like QuickBooks Payroll with features that can support:

• Payments and Deductions including the Medicare levy, superannuation, student loans and statutory payments.
• Superannuation schemes and managing contributions including Salary Sacrifice superannuation
• Several pay run payment options such as weekly or monthly
• Error corrections
• Offering worry-free payroll processing, time-saving automation, and many other advantages, QuickBooks Payroll provides the support you need, all year-round. For tips on setting up QuickBooks Payroll, head to the Payroll Resource Hub for articles and guides to help you get started.

Offering worry-free payroll processing, time-saving automation, and many other advantages, QuickBooks Payroll provides the support you need, all year-round. For tips on setting up QuickBooks Payroll, head to the Payroll Resource Hub for articles and guides to help you get started.

Disclaimer: Intuit does not provide professional advice. We may provide you with information that may be of use to you, however this is not to be considered as a substitute for getting your own professional advice. Intuit is not liable to you for your use or reliance on the information provided by it.

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