A payroll system consists of additions and deductions. The additions are the employee basic pay, any special pay, bonus, overtime, severance pay, and any other monetary incentives.
How to figure payroll deductions?
Deductions are of two types, statutory and non-statutory. Statutory deductions are federal and state income tax, any local county tax, and compulsory contributions to social security and Medicare. Voluntary deductions are deductions authorized by the employee, and can include 401(k) plans, cafeteria benefits, additional insurance, loans, check-out payments, and others. In addition, a third category of wage garnishments deductions may also apply. The important consideration when adding deductions to a payroll system is to understand the hierarchy of deduction, or placing the deduction in its correct place.
The first consideration before adding deductions to a payroll system on a routine basis is to make any payroll adjustments, such as withholding of excess payments. Such adjustments should be as negative entry.