An Employer’s Complete Guide to Payroll and Payroll Deductions

payroll

Payroll management is one of the most complex and expensive processes when setting up a business. Thus, the different tasks of running a payroll can make the process even more time-consuming. Similarly, when you understand this guide the different payroll deductions; you can understand the finances of your organizations better as well.

In this article, you will learn everything about payroll and payroll deductions and how this will help your business to comply with UAE’s labor laws. In addition, we will ensure you understand the different components of payroll deductions. Payroll processing is a key factor to consider, we will show you the step-by-step process. Let’s observe:

  1. What is payroll?
  2. How to process payroll – Part 1
  3. How to process payroll – Part 2
  4. Components of payroll
  5. Examples of payroll reduction
  6. Deductions
  7. Overview
  8. How Can ConnectHR provide you with the best payroll software in Dubai and the UAE?

What is payroll?

We define payroll as the list of workers within the organizations and their salaries, but at the moment it is commonly used to reference the record of the amount of money the employees have made and their monthly and annual wages. However, as a task of the company it also involves:

Developing the organization’s pay policy; this includes leave encashment policy, flexible benefits, etc.

  • Defining payslips elements like variable and basic pays, LTA, and LTA.
  • Collecting other inputs such as the company’s food supplier may give information about the number recovered from the workers from meals consumed.
  • The real calculation of net salary, market and statutory deductions, and arriving at the gross pay.
  • Depositing duties like PF or TDS, etc. with the authorities and filing returns.
  • Releasing employee salary.

Payroll is one of the most important parts of a business, we have an article on the differences between manual and automated payroll.

How to process payroll – Part 1

  1. Set up your employer ID number: the first step in this process is to set up your EIN and local and state tax IDs. In the same vein, the government uses these IDs to track your company’s payroll taxes, this way they ensure you are complying with their requirements.
  2. Gather the relevant worker tax information: before you start running payroll, your workers must fulfill some tax forms so you can start accounting allowances and other tax details. Therefore, there are various local and state forms you must provide; similarly, this depends on the type of business you are operating.

Before you start processing the first paycheck of your worker, you should have the next documents:

  • Job application: even though if the worker never filled out a formal application form, this document on file ensures that all-important is in one place.
  • Deductions: your worker may participate in your business benefits such as retirement savings plan, health insurance, or a health savings account. Likewise, the correct payroll processing ensures that correct sums of money for these benefits are put in place in each pay period.
  • Wage garnishments: you are required by law to garnish your workers’ salaries in case they owe money. Certainly, income garnishments are ordered by a court, make sure you have the right documentation in your records.

Select a payroll schedule: once you have the relevant legal and tax information ready to establish the payroll, you may choose what suits your company. Thus, there are 4 types of schedules:

  • Weekly.
  • Biweekly.
  • Monthly.
  • Bimonthly.

Once you have chosen a schedule, set up a calendar with paydays; and have in mind the days when you need to process payroll for your employees to get their salaries on that same day.

process payroll

How to process payroll – Part 2

  • Calculate gross pay: once you have set up the payroll schedule, you may start processing your first payroll. Therefore, you must calculate each worker’s gross payments; this is the total hours a worker has continuously worked in an established period multiplied by their hourly rate.
  • Calculate the net pay of your worker: after that, you may subtract each worker’s deductions from their gross pay. The leftover is the take-home pay or net pay. Therefore, this is the amount you will pay each worker. However, you must hold the deductions and pay the workers quarterly or monthly, depending on the schedule you previously established.

 Once you established each worker’s net pay, you can start paying them on their scheduled payday. Similarly, here is a list of ways to pay your workers:

  • Paper checks mailed distributed at the workplace or to their homes.
  • Direct deposit straight to their bank accounts.
  • Prepaid cards with their net pay.
  • Mobile wallet.
  • Cash.
  • Maintain payroll records: it is important to keep records of your transactions for compliance and tax purposes. In other words, if a worker disputes a payment or you need some documentation down the line, you must have all the records ready. Therefore, you must keep records, including all year-to-date payments.
  • Be mindful: consider that you must file your company’s taxes annually and quarterly. Therefore, it is important to have a partner to ensure you learn how your taxes fit into the different aspects of your operations. When you outsource your payroll, you can focus on your core business tasks.

Components of Payroll Deductions

Certainly, there are various components involved in payroll processing; however, you can divide it into 3 sections such as worker information, salaries and wages, and deductions.

Worker information

You must collect information from your workforce before you make the payment for their salary. In addition, all your workers must fill the W4 form at the time of hire. In other words, the W4 form provides information about the wage tax deductions of the worker. Similarly, the form also includes the following information:

  • Worker’s name.
  • Social Security number.
  • Address.

Salaries and Wages

You can pay your workers on an established annual salary or at an hourly rate. However, they have the right to receive a fixed amount as payment in each pay period. Similarly, the worker’s annual statement shows the gross pay, reimbursements, benefits contributions, overtime pay, net pay, and additional income.

Meanwhile, hourly workers or wage earners, earn as fixed at the hourly rate.

Time worked

The ‘worker time’ or time worked is the total number of hours the individual has worked during the pay period. Likewise, most businesses require their hourly employees to have a track of their timings. In the same vein, salaried workers can also have a track of their timings if they have due overtime periods.

Gross pay

Gross pay is the entire income of the worker before all mandatory payroll deductions. In addition, gross pay is also the potential earning of a worker.

Reimbursement and benefits contribution

Benefits are the contribution that a company provides to its employees. Similarly, some common benefits are health insurance, paid leaves, and retirement plans. That is to say, companies deduct most of the benefits from the worker’s salaries. However, after submitting certain documents, the workers are eligible to receive reimbursements on the deducted amount.

Examples of Payroll Deductions

One of the best examples of payroll reductions is reimbursement of health insurance, this is provided after the usual annual health screening. Another good example of wage deductions is the educational reimbursement, where the company compensates the worker for attending courses related to their job or for pursuing a college degree.

Overtime pay: most workers have the right to receive overtime pay. The employment policies state that overtime pay is 1.5 their regular income rate. However, overtime pay applies to additional hours worked by the individuals over normal work hours.

Additional income (bonuses, commissions, and tips): this can apply to service staff, sales representatives, and any individuals eligible to receive bonuses. In the same vein, some common types of additional income include bonuses, tips on sales, commissions, and other activities related to the business.

In case you want to keep reading, we have an article about why payroll is so important for a business?

Net pay: after all the deductions, the total remaining amount is called the worker’s net pay. In addition, this is also known as take-home income. Therefore, this is the total amount the workers receive on their payday.

Payroll and Payroll Deductions

Deductions

Certainly, payroll deductions or deductions are the total amounts removed or deducted from the worker’s paycheck for tasks and other purposes. Certainly, some of the common ways of payroll deductions include payroll taxes, payroll withholdings, wage garnishments, and benefit deductions.

Payroll taxes: certainly, taxes are one of the most common ways of payroll deduction. That is to say, the company withholds an amount as tax from the gross payment of the worker. Payroll taxes usually refer to social security and medical taxes. Moreover, in some cases the workers are also responsible to pay income tax, therefore, this is deducted from their pay.

Payroll withholdings: this term refers to income tax and unemployment taxes. Similarly, the W4 form of the worker determines the amount the company needs to withhold. The income and unemployment taxes are usually based on the location of the company. However, these deductions include local tax, income tax, etc. the employment law also determines the tax rate.

If you are running a company; you must put the comfort of workers first, we have a 10-step guide to employee wellness.

Benefits deductions: similarly, the benefits deductions are the contributions towards, life insurance, health insurance, and certain fringe benefits. In other words, these benefits sustain a cost from the worker for the service and coverage.

Overview

Certainly, the worker and the company must pay a certain amount of monthly health insurance premiums. Similarly, some retirement plans subtract a percentage from the worker’s wage and place it under a specified retirement account on behalf of the worker.

In addition, you can process payroll manually by your in-house staff, or you can outsource with a professional service like ConnectHR. Above all, the best way to run and calculate payroll is to use appropriate payroll software.

We have the best-automated payroll software in the UAE, you can read an in-depth guide here.

The process of running yourself a payroll is the most complicated and time-consuming task of a company. Similarly, as we mentioned earlier, a good foundation of the basics of payroll can help you understand the finances of your company and to make a better plan for payroll deductions.

Most importantly, running correct payroll and payroll deductions is a crucial way to ensure the long-term growth and expansion of your company.

How Can ConnectHR provide you with the best payroll software in Dubai and the UAE?

Having automated payroll processing is perhaps the best thing you can do for your employees. Likewise, now you are aware of the overall process of running a payroll and its reductions; the next step is to find the best professional partner that can do this tedious process for you. In ConnectHR, we have the best payroll software in Dubai and the UAE.

ConnectHR is part of ConnectGroup, we are a team of experts focused on assisting companies with the best professional solutions. In addition, we have more than 2 decades of working closely with businesses all across the UAE.

In case you want to improve your HR department, you can ask for our payroll services-WPS, insurance, attendance, and HR consultancy.

Would you like to contact ConnectHR to discuss how can we provide you with the best payroll software in Dubai and the UAE? You can call us via +971 433 16 688 and you will talk to one of our agents who will kindly answer all of your questions.

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Frank H

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