How to Help Your Employees Understand Their Paycheck Easily

November 30, 2015 Leena Thampan

How to Help Your Employees Understand Their Paycheck Easily

Every time you process a payroll to pay your workers, you need to provide them with a paycheck.

The paycheck works as a record of an employee’s payroll, and the format of the paycheck might vary depending on how / what you use to process payroll at your company.

There are certain elements that will appear on every paycheck, and by making it easier for your employees to understand their paychecks, they will be able to stay on top of their finances.

We have created a comprehensive list of all the payroll terms and terminology your employees will find on their paychecks and everything they need to know to understand those payroll amounts.

And all you have to do is share the post with your company and everyone should have a better understanding of how to read a paycheck accurately.

Employee & Employer Details

Because paychecks contain sensitive payroll information, you should make sure that the paychecks include your business details as well as employee personal details.

Employee personal details, like their full name and their home address, should always be accurate and kept up-to-date.

Payroll Cycle Details

The payroll cycle start and end dates should be clearly outlined in a paycheck. This will help your employees know exactly what they got paid with each pay period.

The pay dates are usually aligned with the payroll frequency for your company, unless you are processing an off-cycle payroll.

Another item that should be included in a paycheck is the employee’s hourly or annual pay rate. This makes your employees aware that the right amount is being used in payroll calculations.

There are four types of payroll frequencies, and while bi-weekly or semi-monthly payrolls are the most common, some small businesses and startups might process payroll on a monthly or weekly basis.

Depending on the frequency your company uses, there will be a specific number of pay periods each year. It helps if your employees keep this in mind when they are reviewing the payroll calculations on their paychecks.

Payroll Frequency

Number of Pay Periods

Type of Worker

Costs & Processing Time

Weekly

52 pay periods / 40 hours per pay period for hourly employees

Typically used with hourly employees in the trades (i.e. construction, electricians, etc), and the standard is to hold back the payroll by one week.

Can be expensive and time-consuming

Bi-weekly

26 pay periods / 80 hours per pay period for hourly employees

The payroll frequency commonly used with salaried employees.

Either one of these frequencies can be manageable from a processing time and cost standpoint.

Semi-monthly

24 pay periods / 86.67 hours per pay period for hourly employees

Monthly

12 pay periods / 173.33 hours per pay period for hourly employees

This frequency is only used with salaried employees, or contractors who are billing you for hours worked on a monthly basis.

This frequency offers small business owners the most convenience in terms of cost and processing times.

 

Federal, State & Local Taxes

As an employer, you are responsible for withholding and remitting all the federal and state taxes owed on behalf of your salaried employees. Local taxes may not always be handled by your payroll provider or your payroll software, but you should make sure that local taxes are paid out as necessary.

With self-employed / contract workers, the responsibility of paying those taxes lies solely with the worker.

Based on gross payroll amounts, your employees will be taxed at different percentages because of the graduated income tax system in the United States. The tax brackets depend on the range of income and filing status of your employees, and it ranges from 10 - 39.6% in Federal Income tax.

Federal Income Tax Rates for 2015

Filing Status

Taxable Income

Tax Rate

Single

$0 to $9,225

10%

$9,226 to $37,450

$922.50 plus 15% of the amount over $9,225

$37,451 to $90,750

$5,156.25 plus 25% of the amount over $37,450

$90,751 to $189,300

$18,481.25 plus 28% of the amount over $90,750

$189,301 to $411,500

$46,075.25 plus 33% of the amount over $189,300

$411,501 to $413,200

$119,401.25 plus 35% of the amount over $411,500

$413,201 or more

$119,996.25 plus 39.6% of the amount over $413,200

Married Filing Jointly or Qualifying Widow(er)

$0 to $18,450

10%

$18,451 to $74,900

$1,845.00 plus 15% of the amount over $18,450

$74,901 to $151,200

$10,312.50 plus 25% of the amount over $74,900

$151,201 to $230,450

$29,387.50 plus 28% of the amount over $151,200

$230,451 to $411,500

$51,577.50 plus 33% of the amount over $230,450

$411,501 to $464,850

$111,324.00 plus 35% of the amount over $411,500

$464,851 or more

$129,996.50 plus 39.6% of the amount over $464,850

Married Filing Separately

$0 to $9,225

10%

$9,226 to $37,450

$922.50 plus 15% of the amount over $9,225

$37,451 to $75,600

$5,156.25 plus 25% of the amount over $37,450

$75,601 to $115,225

$14,693.75 plus 28% of the amount over $75,600

$115,226 to $205,750

$25,788.75 plus 33% of the amount over $115,225

$205,751 to $232,425

$55,662.00 plus 35% of the amount over $205,750

$232,426 or more

$64,998.25 plus 39.6% of the amount over $232,425

Head of Household

$0 to $13,150

10%

$13,151 to $50,200

$1,315.00 plus 15% of the amount over $13,150

$50,201 to $129,600

$6,872.50 plus 25% of the amount over $50,200

$129,601 to $209,850

$26,772.50 plus 28% of the amount over $129,600

$209,851 to $411,500

$49,192.50 plus 33% of the amount over $209,850

$411,501 to $439,000

$115,737.00 plus 35% of the amount over $411,500

$439,001 or more

$125,362.00 plus 39.6% of the amount over $439,000

Source: IRS 2015 Federal Tax Rates, Personal Exemptions and Standard Deductions

In addition to Federal Income tax, you are also responsible for filing and paying the state specific taxes applicable for each employee, based on their location of work.

State Wage Withholding and Supplemental Wage / Bonus Tax Rates for 2015

Most payroll providers or software solutions can handle these state withholdings automatically, on your behalf using the state specific tax tables. But, if you are tackling payroll by yourself, you can use the wage withholding tables to determine what taxes need to be paid on behalf of your employee.

State

Wage Withholding

Supplemental Wage / Bonus Rate

Alabama

Tables

5.0%

Alaska

None

None

Arizona

% of AZ Gross Taxable Wages

No Provision

Arkansas

Tables

6.9%

California

Tables

6.6%, except 10.23% for BONUSES and earnings from STOCK OPTIONS

Colorado

Tables

4.63%

Connecticut

Wage %

*Net of exemption and credit table

No Provision

Delaware

Tables

No Provision

District of Columbia

Tables

No Provision

Florida

None

None

Georgia

Tables

Depends on total annual wages, tax rate = 2, 3, 4, 5 or 6%

Hawaii

Tables

No Provision

Idaho

Tables

7.4%

Illinois

3.75%

3.75%

Indiana

Tables

3.3%

Iowa

Tables

6.0%

Kansas

Tables

4.5%

Kentucky

Tables

No Provision

Louisiana

Tables

No Provision

Maine

Tables

5.0%

Maryland

Tables

MD resident = 5.75% plus County W/H rate

Massachusetts

Tables

5.15%

Michigan

Tables

4.25%

Minnesota

Tables

6.25%

Mississippi

Tables

No Provision

Missouri

Tables

6.0%

Montana

Tables

6.0%

Nebraska

Tables

5.0%

Nevada

None

None

New Hampshire

None

None

New Jersey

Tables

No provision, but for pay over $500,000 withhold at 9.9%

New Mexico

Tables

4.9%

New York

Tables

9.62%

North Carolina

Tables

5.75%

North Dakota

Tables

2.05%

Ohio

Tables

3.5%

Oklahoma

Tables

5.25%

Oregon

Tables

9.0%

Pennsylvania

3.07%

3.07%

Puerto Rico

Tables

No Provision

Rhode Island

Tables

5.99%

South Carolina

Tables

7.0%

South Dakota

None

None

Tennessee

None

None

Texas

None

None

Utah

Tables

No Provision

Vermont

Tables

24% of Federal Tax

Virgin Islands

None

None

Virginia

Tables

5.75%

Washington

None

n/a

West Virginia

Tables

3 - 6.5%

Wisconsin

Tables

4.0%, 5.84%, 6.27% or 7.65%

Wyoming

None

None

Your employees should review their paychecks to ensure that you are filing and paying the right amount of Federal and State withholdings on their behalf.

Social Security & Medicare

As per the Federal Insurance Contributions Act (FICA), you are responsible for remitting both the employer and employee contributions towards Social Security Tax and Medicare Tax to ensure coverage under the U.S. Social Security system.

The Social Security tax rate is 6.2%, which is the same for both the employer and employee. This qualifies your employees to receive a monthly social security payment after they retire.

The Medicare tax rate is 1.45% for both the employer and employee, and it is a mandatory withholding, same as the Social Security tax. If the employee is eligible for Social Security, these medicare payments ensure that your employees get coverage for a variety of medical expenses.

An individual is liable for additional medicare tax (rate is 0.9 percent) if the individual’s wages, compensation, or self-employment income (together with that of his or her spouse if filing a joint return) exceed the threshold amount for the individual’s filing status:

Filing Status

Threshold Amount

Married filing jointly

$250,000

Married filing separate

$125,000

Single

$200,000

Head of household (with qualifying person)

$200,000

Qualifying widow(er) with dependent child

$200,000

These are the main elements of a paycheck, but sometimes you might hold back insurance deductions or retirement plan contributions on behalf of your employees.

These amounts are also reflected on the paycheck on a case-by-case basis. Other additional items like leave time and childcare assistance might also appear on their paycheck.

We hope this post makes it easy for your employees to read and understand their paychecks better. For help for creating your payroll system, count on Wagepoint's payroll solution.

About the Author

Leena Thampan

Leena worked for some of the big guns in the media industry before deciding her true calling was to be the ultimate curator of our brand - this is our version of the story, of course. She spends her days cooking culinary masterpieces from all over the world. And if you are not really careful, she might just offer it to you.

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