The importance of payroll accounting cannot be overstated. For starters, it helps you organise and gather information about one of the most important business expense categories: the money you pay your staff for their hard work. Payroll accounting also involves keeping track and withholding of payroll taxes.

Apart from having a clear understanding of the impact of the payments you will make on your bottom line, payroll accounting also helps ensure you pay your employees fairly for their hard work and time. Federal and state agencies will also require you to subtract payroll taxes from your payroll checks and supplement them with your contributions.

Salaries and Wages

The amount of each of your staff’s paychecks will depend on whether they are paid on a salaried or hourly basis. Hourly workers make a certain amount for each hour of service they render.

The Department of Labor typically requires that employees are paid overtime wages of one-and-a-half times the usual rate when they work more than 40 hours a week.

An exception will be made when they qualify for overtime exemptions or when they work specific types of sales jobs. On the other hand, salaried workers earn a certain amount each week. This is regardless if they have worked less or more than the standard 40 hours per week.

Hours

Keeping an accurate track of employee hours will not only help you provide accurate paycheck information, it can also help you gather data about how the business is spending its payroll funds.

Asking your staff to log hours based on the type of work they have done (i.e., customer service vs. production) can also help you compile data and assess how much you are spending in each category.

The information you will gather can be very useful when improving your bottom line. Case in point: if your payroll data clearly indicates that you are spending more money on customer service as opposed to production, you will be motivated to introduce new efficiencies into your customer service department.

Filing Taxes

The federal government will require that you periodically file employment tax forms. Most states follow the same schedule. Ensuring you keep a close track of the amount you have paid your staff as well as the tax withheld from the paychecks will make it very simple to fill out tax forms.

When you register an employer in the federal government, you will be assigned a  federal tax payment schedule by the Internal Revenue Service. The schedule can be weekly, monthly, or quarterly.

Depending on the schedule assigned to you, you can either make periodic transfers online or you can pay the entire quarterly amount as soon as you file your tax form. As your payroll tax increases and your business grows, the IRS will likely change the filing schedule so you can make more frequent payments.

Tax Withholding

The federal government will require that you withhold income taxes from your staff’s pay checks and remit them periodically. Income tax withholding amounts are typically based on the amount of money your employee earns. The filing status stated on the W-4 form will also be taken into consideration.

You need to also withhold amounts for Medicare and Social Security and make sure you make employer contributions to said funds. As of 2012, the Social Security tax withholding rate is 5.65 percent of the gross wage of the employee.

The combined employer contribution is at 7.65 percent of the gross wage. Payroll tax can vary from one state to another. Some states also have no income tax at all.