How to Calculate Your Payroll

Calculating payroll is a multi-step process that involves determining your hourly wages and the number of hours worked per week, including variables like overtime, then removing taxes and allowances. This article explains how to calculate payroll for personal and accounting purposes.

First, you must calculate your gross earnings. You do this by annualizing your pay. For example, if you make $4,000 per month, you must multiply it by 12 to calculate annual pay. The amount will be $48,000.

You then take that $48,000 and divide it by 52 because there are 52 weeks in the year and not always four weeks in the month. This will bring you to $923.08 per week. Remember, this is your gross pay, not your take-home pay.

After you calculate weekly rate, you must then calculate hourly pay. So, take $923.08 and divide it by how many hours you work. Let's say 40 hours. That will bring you to $23.07 per hour. So, your regular rate is $23.07 per hour.

What if you get paid overtime? Well, you can easily learn to calculate overtime pay, too. Take your hourly rate of $23.07 and multiply it by 1.5. This will bring your overtime rate to $34.61 per hour for work of more than 40 hours per week.

How about double time? Some employers pay double time for working on Sundays. So, take your hourly rate and multiply it by two. That will bring your double time pay to $46.14 per hour.

Let's say you work 45 hours for your first week of employment; $23.07 x 40 = 922.80. You overtime rate is more or less equal to 34.61, which multiplied by five is $173.05. Now, add $922.80 + $173.05 to get $1,095.85. This is your gross earnings for the first week.

Now, it is time to start the deductions. Let's start with federal income tax. Get your tax table. If you are single, look at the single sheet and same goes for married. Find your earnings, which would be within the $1095.85 range. For example, if it says at least $1,000, but no more than $1,500, that would be the range you would use. This range is formatted into two columns on the left side of the form.

Now, you find how many dependents you want to claim. This is known as withholding allowances. Find your earnings range again and scroll across to dependents and there will be how much you deduct for federal income tax.

For Social Security, there is a specific rate of pay that if you go over your Social Security will not be withheld. This amount is around $100,000 per year. If you already make $100,000 per year, then chances are you know how to calculate payroll or already have someone doing it for you. So, Social Security rate is always 6.2 percent and Medicare rate is always 1.45 percent.

So, you take your earnings, which were $1,095.85 x 6.2 percent = $67.94 deducted for Social Security. For Medicare, you take 1.45 percent x $1,095.85 = $15.89 deducted. Now add up all deductions which more or less equals $67.94 + $15.89 + your federal income tax = total deductions.

Now, subtract total deductions from gross earnings to receive your net pay amount.


  • State income tax is not provided. You must get these rates from your state department of revenue. Any other deductions, such as insurance and charity contributions must be added in for net pay to be correct. Pre-taxed retirement must be deducted from gross earnings before taxes are taken out.



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