Every employer must pay their employees accurately and on time and comply with other regulatory requirements. To execute these duties, an employer may hire a payroll person. Depending on the size of the company, the payroll department might have one or more employees. Although there are many different types of payroll positions, an actual payroll person generally processes her employer’s payroll from start to finish.
Federal and state laws classify employees either as nonexempt or exempt; payroll processors must know the difference between such employees. In short, nonexempt employees qualify for minimum wage and overtime, while exempt employees do not qualify for overtime and, in some cases, minimum wage. However, things are not that simple, because exempt employees must meet some specific and complex legal requirements to be classified as such. Your employer’s human resources department should classify employees before sending you the paperwork to pay them. Still, you must understand classification guidelines to ensure proper payment.
Wages encompass all types of compensation that an employer pays an employee for services rendered. Wages include regular and overtime pay; salaries; commissions; bonuses; severance pay; vacation, sick, personal, bereavement and holiday pay; tips; prevailing wages for construction projects; business expense and tuition reimbursements; and fringe benefits. You must know which wages are taxable and which are not. This is an intricate process that requires knowledge of federal, state and local tax laws.
You should know how to calculate mandatory paycheck deductions, such as federal, state and local taxes, wage garnishment and state disability insurance. You might also have to make voluntary paycheck deductions, such as health and life insurance, flexible spending accounts, retirement contributions and paycheck advance repayment. To accurately calculate paycheck deductions, you must know the difference between pretax and after-tax deductions.
Your employer’s finance or accounting department should handle payroll accounting duties. You must work with accounting to ensure accurate financial records. A small company might not have an accounting department. In this case, you might have to perform payroll accounting tasks. This includes paying and reporting employer and employee taxes to the respective government agencies. You must also comply with the Social Security Administration’s rules for processing annual W-2s.
You should know all other payroll laws that affect employee compensation, such as record-keeping, paydays, hiring family members, new-hire reporting and final paychecks. You should also know which agency handles what. For example, the U.S. Department of Labor, Wage and Hour Division administers federal paycheck laws. The state labor department oversees state paychecks laws. The IRS and state revenue agency enforces federal and state employment tax laws.
An employer might prefer job candidates with payroll certification. If you are new to payroll, you can obtain Fundamental Payroll Certification from the American Payroll Association. Experienced payroll professionals can obtain Certified Payroll Professional designation from the APA. The association also provides training and courses that you can take to improve your knowledge of payroll.
- Cornell University Division of Financial Affairs: Payroll Services
- U.S. Department of Labor: Exemptions
- Optimum Solutions: How to Calculate Taxable Wages
- PrimePay: Understanding Mandatory and Voluntary Payroll Deductions
- Social Security Administration: Deadline Dates to File W-2s
- CompuPay: The Top 10 Things You Need to Know About Payroll
- American Payroll Association: Certification