History of the Payroll System

Businesses incur a variety of expenses and must keep meticulous financial records. Since the development of writing in the ancient world, businesses have been keeping records of their financial transactions. The United States tax system requires that business keep accurate payroll records for tax purposes.

Payroll

Payroll is one of the largest expenses incurred by a business. It consists of the wages and salaries any business pays its employees.

Taxes

U.S. law requires businesses to withhold certain taxes from an employee's wages. Employers are required to withhold state, federal and city taxes from these earnings. Some states and cities do not impose such taxes. Employers must also withhold Social Security and Medicare Taxes, known as FICA, from employees' wages. They must periodically remit these taxes to the government throughout the year. Employers may also impose other deductions for benefits provided, such as health insurance, through the company.

Social Security and Medicare

The Social Security Act of 1935 had the greatest impact on the payroll system. This law provided unemployment assistance to workers who lost their jobs and public aid to the needy. The government funded these programs by requiring that taxes be automatically deducted from employees' paychecks. These laws have placed obligations on every companies' payroll system to keep accurate records of deductions and payments.

References

About the Author

Marci Sothern has written as a tutor in the academic field since 1999. She holds a bachelor's degree in history and a master's degree in political science from the University of Texas at Tyler. Her main areas of expertise include American history, comparative politics, international relations and political theory.