Category: Payroll

Posted on

How to Do Payroll Yourself: Steps to Take and Risks to Consider

Summary

  • Small businesses often consider doing their own payroll. This option is feasible, provided you are well-versed in employee wages, tax laws, and payroll regulations.
  • DIY payroll may save you from spending on payroll services or software, but there are other factors you must consider to understand whether it’s cost-effective in the long run.
  • Much of payroll processing starts before timesheets are generated. It begins with onboarding, making sure that employee information is gathered and accurate.
  • Workforce.com’s payroll software takes the stress out of processing pay on your own, handling wage calculations, overtime, deductions, taxes, and more.

If you’re a small business owner or an entrepreneur starting out, you are probably considering doing payroll yourself. And rightfully so – doing this can save you money and give you greater control over your finances.

While this may be true, processing payroll manually presents some considerable challenges, such as keeping track of regulations, taxes, and deadlines. 

So, is doing payroll yourself the best choice for your business? In this post, we’ll explore the process of managing payroll yourself while looking into its complexities and potential pitfalls.

What are the steps for processing payroll?

Processing payroll involves several essential steps, from collecting employee data to calculating wages and managing deductions. Here’s a rundown of what these steps include: 

Apply for tax ID numbers.

You must have an Employer Identification Number (EIN) before you can pay your employees. It’s required to apply for a business bank account, file taxes, and employ people. You might also need to register for different tax IDs if you operate across multiple states. 

Consider setting up an Electronic Federal Tax Payment System (EFTPS), a free tool by the US Department of Treasury to help secure tax payments. The EFTPS allows you to make different types of payments, including estimated taxes, corporate taxes, self-employment taxes, payroll taxes, and excise taxes.  

Gather employee information.

Collect essential employee details, including their name, address, phone number, bank details, date of birth, marital status, social security number, and bank details.

You must also have their W-4 forms or tax withholding documents. W-4 documents show how much taxes you should withhold from your employees’ paychecks. Make sure that a new hire accomplishes this during onboarding. Likewise, any employee whose financial situation changes should update their W-4 as necessary. If you hire freelancers, you must let them complete W-9 forms instead. 

Financial information such as tax IDs, previous payslips, existing insurance coverage, and tax reports is also essential for processing payroll.

Onboarding can be a time-consuming process that’s heavy with paperwork, especially without an organized system in place. Workforce.com’s onboarding system lets new hires log in and input their details, submit forms, and upload necessary documents ahead of their first day. This streamlines the process, ensuring all paperwork is handled upfront and freeing your HR and payroll team from tedious manual data entry.

Set up a payroll schedule or period.

Determine when you will distribute pay to your employees. Typically, you can process payroll weekly, bi-weekly, semi-monthly, or monthly. 

To determine the most suitable pay schedule for your business, factor in the following:

  • Cash flow – The important thing here is to ensure that you have enough cash when payday comes. Determine when you’re most likely to be cash-positive and consider timing your payroll around that time. For instance, timing payroll around the same time you pay for utilities and supplies may not be the best move. 
  • Industry practices – Look at what’s common in your industry. If you employ hourly workers, opting for a biweekly or weekly payment scheme would be best, as they typically prefer more frequent payments than salaried employees. 
  • State laws or payday requirements – Check if there are prevailing state payday requirements about how frequently you need to pay your employees and when to time it.  For instance, Arizona requires that you pay employees two or more days a month as long as they are at most 16 days apart. Meanwhile, in Massachusetts, hourly employees must be paid weekly or biweekly, while salaried employees must be paid at least semi-monthly. The latter can be paid monthly, provided that they agree. These differences and nuances exist around required payday schedules, so factor those in as well.  
  • Payroll processing time – You must also be realistic about how fast you can process payroll. It may not be wise to set up a weekly payment scheme if you’re doing payroll yourself. Factor in the time you need to gather information and calculate wages. 

It’s also important to note that organizations can have multiple pay periods, especially if they employ varied workers. The key to setting the right pay period is to take a look at how your organization operates and what makes the most sense for your employees. 

Workforce.com’s payroll system supports a variety of pay schedules—weekly, fortnightly, semi-monthly, and monthly. You can set up multiple pay periods and assign them to different roles. This ensures that employees get paid on the schedule that works best for them. For you, this means one less payroll task to worry about, because it’s fully automated.

Determine payment method.

Direct deposits are usually the standard form of payment for employers to distribute salaries to their employees. However, even as the standard, some prevailing state laws prohibit employers from making this method mandatory. 

Other ways to pay employees include cash, checks, pay cards, and mobile wallets. Each method has its pros and cons. For instance, checks can be a good option for employees who don’t want to disclose their bank information, but they can be prone to getting lost and are not immediate. While direct deposits may be more commonplace and convenient, employers must factor in how long it takes for funds to reflect in an employee’s account. 

Other considerations include the possible fees that come with each payment method. For instance, pay cards can have setup costs.

As you choose the best payment method for your staff, factor in any prevailing law and what makes the most sense for your employees. Consider providing two options as well. For instance, if an employee can’t be paid through direct deposit because they have no bank account, consider setting up a pay card or issuing paper checks as an alternative.  

It would be best if you also issued pay stubs for your employees. There may be state and local laws that have specific requirements around this. For instance, some states require employers to issue printed pay stubs unless the employees consent to receive electronic ones instead. 

But regardless of whether it’s mandated in your state to issue pay stubs, it’s still best practice to do so. They are essential for transparency. It includes details about what makes up their pay, such as wages, deductions, and taxes. 

Track employee work hours.

Tracking time and attendance is at the core of processing payroll. Record the hours worked by employees, including regular and overtime hours. It also involves monitoring PTO, leave, and holidays.

There are different ways to track employee time, but the goal is to do so accurately. Time and attendance data is vital to calculating wages, and you must get it right from the start. Ensure you have an accurate record of this information to calculate salaries accurately. It’s best practice to have an automated system to capture and export employee time into timesheets. Doing so will help ensure accuracy and avoid time theft. 

Workforce.com’s time and attendance system captures employee clock-ins and clock-outs in real time, automatically generating timesheets. It also sends alerts to both managers and employees if a punch is missed, reducing the need for manual cross-checking during payroll and maintaining the integrity of time records. Plus, employees can clock in directly from their devices with GPS tracking, which is ideal for workers in the field or businesses with multiple locations. 

Calculate gross pay.

Determine the gross pay for each employee by multiplying their hours worked by their hourly rates or by dividing their salary by the pay periods if they’re salaried. 

In order to do any of this, you first need to gather employee timesheets to determine how many hours each employee has worked. This is especially crucial for hourly employees, but you must also look at non-exempt salaried workers’ timesheet records in case they’re entitled to overtime pay.

Aside from their base pay, you must also factor in overtime, PTO, bonuses, and other incentives. Do you offer premium pay rates or shift differentials? Make sure that those are accounted for as well.

Furthermore, if you have employees who receive a significant amount of tips, you’ll need to track that as well and account for all applicable state laws.

Also read: Your guide to tipping laws by state

Note that there are state-based rules for computing overtime. Typically, overtime rates come into play when employees work more than 40 hours a week. However, some states have unique stipulations, like California. Employees who reach the 8-hour threshold in a day are paid 1.5x more per hour of overtime. And if they work over 12 hours, they are paid 2x their regular rate. 

Yes, a lot goes into computing an employee’s gross wages, and clearly, it’s not just about adding up their work hours and corresponding base pay. Here are other relevant and useful guides to help you get started: 

Compute and apply deductions.

After calculating gross wages, you need to factor in applicable deductions. Some of these are involuntary, while others are voluntary. 

Involuntary deductions are mandatory under the law. Employers should subtract these amounts in compliance with applicable laws and remit them to tax agencies and other authorities. Common involuntary deductions include employee withholdings like FICA tax, Medicare tax, social security tax, federal income tax, state and local taxes, and wage garnishments. 

Voluntary payroll deductions are amounts subtracted from an employee’s paycheck by their explicit choice or agreement. These deductions include retirement plans, health insurance, union dues, and other job-related expenses such as parking and travel. Some of these deductions are taken before or after taxes. It pays to double-check whether they are post-tax or pre-tax deductions.

Also read: What are different payroll deductions? Taxes, benefits, and more

Also, consider the necessary paperwork for deductions. There’s the W-4 for taxes and insurance forms for benefits, to name a few. Authorization to deduct is required for voluntary payroll deductions, so ensure your employees accomplish that and update when necessary. In addition, some employees may be exempt from FICA, so you need to consider that, too. 

Free template: Payroll Deduction Authorization Form

Calculate net pay.

The net pay is the amount employees take home after all deductions. Subtract the total deductions from the gross income to find the net pay.

Pay your employees.

Pay your employees according to the set payment method and on the scheduled pay date. Make the necessary transactions and arrangements to ensure your staff receive their pay on time. 

If you’re paying employees through direct deposit, account for how long it will take for the money to reflect in their bank account. Typically, it takes 1 to 3 days, but double-checking is still best.

File and remit taxes accordingly.

After determining federal, state, and local tax withholdings, you must remit these payments to the correct agencies. Depending on the tax type, you may either need to direct the funds immediately or reserve them and make the remittance closer to the payment deadline. 

It’s also important to note that while employer contributions are not part of employee payroll, they are a core part of this process. Some contributions are paid by both employers and employees, such as Social Security and Medicare. Other obligations are solely on the side of employers, such as the Federal Unemployment Tax (FUTA).  

Check with the appropriate agency for more information on handling tax rates and payments. For a complete list of employment taxes and their due dates, visit this full list from the IRS.

Keep payroll records and generate reports.

Create and review payroll reports to ensure accuracy and prepare for external audits. This includes reports for tax filings, financial statements, and employee records.

You must also create reports required by government agencies such as the IRS. Typically, such reports inform the agencies about wages paid to employees, withheld taxes, and employer contributions. Note that these reports may have different deadlines and require specific forms. For instance, Form 941 is used to report an employer’s quarterly federal tax return, while Form 940 is in relation to FUTA.

Furthermore, the FLSA mandates employers to keep payroll-related for three years.

Also read: A guide to accurate and comprehensive payroll reports

You can easily generate payroll reports to get a better understanding of your business and payroll expenses. Workforce.com helps you stay on top of government requirements and also lets you create reports that show how your payroll connects to frontline work and employee performance.

Things to Consider Before Doing Payroll Yourself

If you’re leaning toward doing payroll manually, here are factors you need to carefully weigh before doing so: 

Cost

Doing payroll yourself can save you costs in terms of not having to pay for software or outsourcing payroll. That’s where the appeal comes from, especially if you have a small workforce of 5 to 10 employees. 

However, it’s not just about whether or not to pay for a service, which brings us to the next point. 

Time

Doing payroll yourself requires time – and a lot of it. If you have a growing business, the hours spent processing payroll yourself can sometimes end up costing you more than outsourcing the work.

Consider the opportunity cost of spending a day gathering data, making calculations, cross referencing computations with the latest federal, state, and local laws, staying on top of taxes, and submitting reports. What else could you be doing instead?

All of this work can be incredibly challenging when you have a scaling business. Processing payroll may be manageable for staff with 5 team members, but it can quickly become much more complex when you’re doing it for 50 employees. Not being able to manage your time well can also result in a delayed payroll, which is the last thing you want to happen.

Legal risks

If you or someone on your team is well-versed in tax laws and payroll regulations, doing it in-house might be feasible. However, manually processing pay is risky – errors are inevitable. If you’re doing payroll in a spreadsheet, one wrong entry or a single typo could cause a chain reaction of errors, making you legally liable for inaccurate pay. You can opt to double-check or even triple-check your calculations, but routinely doing so will make payroll take even longer, which, as discussed earlier, can also cost you.

Another risk of manually processing payroll is the potential for employee misclassification. Ensure you understand which staff to classify as independent contractors vs. full-time employees.

Support

When you do payroll yourself and encounter issues, it’s up to you to figure out answers or solutions. This situation can be daunting and complicated. Of course, resources are available, but combing through data sheets and government guidelines can be time-consuming, overwhelming, and prone to misinterpretation.

Operations

If your business is seasonal or operates temporarily, manual payroll might make the most sense since it’s not something you will be doing year-round. But then again, consider the number of employees you have. Choosing a payroll tool might be worth considering if you have a big workforce, even if you won’t be running payroll year-round.

Why Using Payroll Software Makes Sense

Quick answer: automation and accuracy. 

Payroll software helps simplify calculating wages, accounting for labor laws, withholding taxes, bookkeeping, and generating reports. It handles all the vital administrative areas of payroll faster than you would manually do. 

If you run a small business, payroll software helps you stay hands-on with your pay runs, but this time, you can make computations quickly and error-free. Furthermore, if you’re a growing business, payroll software can scale with you and handle the process even as you hire more team members.  

Also read: 14 Best Payroll Software Services in 2025

Features of payroll software to look for

If you’re planning to look at payroll solutions, go for software that has the following functionality: 

Synced with your time tracking system

Much of the payroll process happens even before the part where you calculate wages. This means that the success of your payroll depends on how accurately you record work hours.  

Ideally, your payroll should sync directly with whatever you use to track time and attendance. This way, you can easily process employee time automatically without re-entering or exporting it into payroll.

Automated calculations

Payroll software should be able to automatically compute wages, deductions, and taxes. At the same time, it should account for applicable taxes and labor rules. 

The thing with payroll processing is that every paycheck is different. Your payroll system should account for all these nuances and differences, especially if you employ hourly employees in various locations. 

Go for a payroll system that can handle computations for different employee classifications, pay rates, overtime, tips, deductions, and withholdings.  

Employee self-service

Make payroll information accessible to everyone at your business. Staff should be able to update their personal details and direct deposit information via an online portal or app. This eliminates the need for a middleman; employees handle their own profile changes instead of wasting time asking management.

User-friendliness

While any new software has a learning curve, it is important that you choose one that is intuitive and well-designed. Small businesses don’t have the large departments or specialized expertise required to handle complex legacy systems. Go for an easy-to-use payroll platform that offers quality support—from importing your current data to ensuring that your first pay runs are accurate and smooth. 

Do payroll in minutes with Workforce.com

Workforce.com helps reduce payroll processing time from hours to as little as 20 minutes. It automates adjustments, keeps staff details up to date with self-service features, and sends out incomplete timesheet reminders, taking care of the things that typically slow down and complicate payroll processing.

It can handle tax forms such as W-2s and 1099s, direct deposits, tax filing, wage garnishments, deductions, multiple pay runs, benefits, and payroll reporting. Workforce.com’s payroll software even syncs with other important functions like time tracking, scheduling, hiring, and more.

Discover how Workforce.com can simplify payroll for your small business by booking a demo today. 

Posted on

Payroll Challenges by Industry: What California Employers Need to Know

Summary

  • Different sectors in California face unique challenges, from varying pay rates to complex, location-specific labor laws.
  • Industries like hospitality, healthcare, retail, construction, entertainment, and agriculture often struggle to stay compliant while accurately paying staff.
  • A powerful payroll system can help simplify payroll no matter how complex the rules.

California isn’t just known for its beaches and movie sets; it’s also home to some of the most complex labor laws in the country. And those rules can get tricky fast when it comes to payroll. 

But here’s the catch: not every industry is dealing with the same challenges. In California, payroll compliance isn’t one-size-fits-all. Payroll challenges can look different for a restaurant in LA, a construction site in Fresno or a vineyard in Napa. 

So, let’s break it down. Here’s what California businesses in six major industries—hospitality, healthcare, retail, construction, entertainment, and agriculture—need to watch out for when it comes to paying their teams.

Hospitality: Tips, Schedules, and Challenging Payroll Scenarios

Complying with California Tip Laws

California law is clear: all gratuities belong to the employees. That sounds simple, but confusion often arises around who gets the tips, how they should be pooled, and whether tips count toward the regular rate of pay for things like overtime. 

Unlike in other states, California doesn’t allow a tip credit, meaning employers can’t count tips towards meeting the state’s minimum wage. Every nonexempt employee must earn the full minimum wage before tips are factored in.

Workforce.com Solution: Proper tip handling requires a clear, written policy. Setting expectations upfront is vital, whether you allow tip pooling among front-of-house staff or distribution to everyone working a shift. Once your policy is in place, Workforce.com can help manage the rest. The platform integrates directly with your POS system, enabling you to automate tip distribution based on hours worked, roles, or even custom percentages. Tips can be routed through a virtual “tip jar”, ensuring every employee gets their fair share alongside their regular wages.

Also read: Should you Implement Tip Pooling? Pros, Cons, and Best Practices for Restaurants

Managing Predictability Pay

In California, last-minute schedule changes can come at a cost. Cities like Los Angeles enforce Fair Workweek rules that require employers to post schedules at least 14 days in advance. If you cancel a shift, add work hours, change start and end times within that window, you may owe employees additional “predictability pay”. 

Predictability pay counts as regular wages, which means that they are taxed and must be clearly listed on employee pay stubs.

Workforce.com Solution: Demand-based employee scheduling can help you plan ahead and reduce last-minute changes that trigger predictability pay. Workforce.com analyzes key data points like bookings, events, weather, historical sales, and foot traffic to help forecast demand and optimize staffing. 

What if schedule changes happen within the 14-day window? You can set conditions in Workforce.com to automatically calculate predictability pay when certain conditions are triggered. This ensures that premiums are correctly calculated and won’t be overlooked when it’s time to process payroll. 

Healthcare: Minimum Wage Rules and Off-the-Clock Work Risks

Minimum Wage Compliance

Healthcare workers in California are entitled to higher minimum wages, ranging from $18 to $23 per hour, depending on the type of facility. These rates are set to rise in the coming years.

The first challenge with healthcare minimum wages is figuring out which rate applies. Employers need to know whether their organization falls under the covered categories. The Department of Industrial Relations provides a complete list of who qualifies and what rates apply.

However, knowing the applicable rate is just the first step. You also need a system that keeps up with rate increases and ensures that every employee gets paid correctly based on their job and worksite.

Workforce.com Solution: Workforce.com automatically applies the correct minimum wage rate based on each employee’s location and role. You know that your staff is getting paid what the law requires, whether they’re rotating across departments, facilities, or cities.

Preventing Off-the-Clock Work

It’s common in healthcare facilities for employees to start early or stay late to finish tasks. However, when those tasks happen outside of scheduled hours and without proper time logs, employees can be held liable for unpaid wages and penalties.  

What counts as off-the-clock work? Think nurses reviewing charts before clocking in, staff prepping meds after hours, or handoff meetings that happen outside scheduled shifts. These are all job-related tasks for which employees should be compensated.

Workforce.com Solution: It’s all about having an efficient time tracking system. Workforce.com helps by automating clock-ins, generating real-time timesheets, and sending alerts when employees try to clock in or out outside of their scheduled shifts. 

If an employee tries to log in before or after their shift, the system can prompt them to provide a reason, giving managers visibility into potential issues. Aside from preventing unpaid work, it also helps identify whether extra hours qualify as overtime. 

Employee time and attendance information can be turned into reports that help spot recurring patterns and address off-the-clock trends to avoid non-compliance.

Retail: Local Wage Rates, Predictive Scheduling, and Seasonal Staff Challenges

Managing Varying Minimum Wage Rates

Retail business owners in California can face challenges with varying minimum wage rates across cities and counties. If you’re operating stores in both Los Angeles and San Francisco, for example, you’re looking at two different minimum wage rates: $17.28 in LA and $18.67 in San Francisco. Keeping up with local wage ordinances and applying them correctly can make payroll complicated. 

Workforce.com Solution: Workforce.com’s payroll solution automatically calculates pay based on the location listed in each shift and clock-in record. Because payroll, scheduling, and timekeeping are all connected in one ecosystem, there’s no cross-checking required between spreadsheets or separate platforms.

Dealing with Predictive Scheduling Laws

Retailers in California may be under specific predictive scheduling laws, such as the Formula Retail Employee Rights Ordinance in San Francisco. These laws generally require you to post work schedules at least 14 days in advance, and any last-minute changes can mean extra pay for affected employees. That’s great for workers and improving retention, but tough on payroll if you’re constantly shuffling schedules to keep up with fluctuating demand. 

Workforce.com Solution: While last-minute changes are sometimes unavoidable, demand-based scheduling can help minimize them. Workforce.com uses labor forecasting to build more efficient schedules ahead of time. It factors in data like historical sales trends, local events, weather, and customer traffic patterns, helping managers align staffing with actual demand. This means fewer last-minute changes, fewer penalties, and better compliance. And honestly, even if you’re not legally required to, giving employees their schedules early is just good business practice.

Hiring and Paying Part-Time and Seasonal Staff

Retail relies heavily on seasonal and part-time employees, especially during holidays or promotional events. But quick hiring can often lead to messy paperwork, incorrect classifications, and payroll errors. In the rush to fill part-time and seasonal roles, it’s all too easy for key details to fall through the cracks when you’re onboarding at scale. 

Workforce.com Solution: Workforce.com streamlines onboarding with a paperless process that feeds directly into scheduling, time tracking, and payroll. New hires enter their information directly into the system, eliminating manual data entry errors and ensuring every employee is classified correctly from day one. It allows you to hire faster and focus more on training new hires so they can get up and running instead of being buried in onboarding paperwork.

Construction: Job Sites, Overtime Pay, and Workers’ Comp Risk

Multiple job sites

Construction projects rarely happen in just one place. Tracking hours can become complex when you have crews moving between job sites and working varying schedules. It becomes even more problematic when you rely on manual methods or outdated systems. Without accurate time data, you’re more at risk for wage disputes, payroll errors, and staffing gaps. 

Workforce.com Solution: Workforce.com’s mobile time clock uses geofencing to ensure employees clock in at their assigned job site. It’s a simple way to guarantee that time logs are accurate and tied to the right location. This also allows you to monitor which sites are properly staffed and which ones need more support. 

Workers’ Comp and Classification

In California, construction businesses are legally mandated to provide workers’ compensation insurance. While workers’ comp premiums aren’t technically a payroll deduction, complying with this legal requirement depends heavily on accurate employee classification and payroll records.

Getting the classification right is crucial because different tasks come with varying levels of risk. Premiums are calculated based on the work being done. If you misclassify a worker or fail to track task-specific job codes, you could end up paying too much or facing a compliance issue.

Workforce.com Solution: Workforce.com allows you to assign employee classifications, which can include job codes tied to specific tasks or roles. These classifications are then connected to time tracking and scheduling, so when employees clock in or are scheduled for a shift, their job code and classification are automatically reflected in your records. That way, your payroll data stays accurate, and your workers’ comp reporting aligns with the actual work being done.

Keeping Up with Overtime Rules

Overtime is a given in the construction sector. However, overtime rules in California can add another layer of complexity. Beyond the standard 40-hour workweek, employees are also eligible for overtime after 8 hours a day and double time after 12 hours. 

Workforce.com Solution: Workforce.com payroll software handles California’s overtime rules automatically. Whether it’s time-and-a-half after a full 8-hour shift or double time after working 12 hours, the system applies the correct rates once the appropriate conditions are met. 

Agriculture: Break Tracking, Worker Classification, and Piece-Rate Pay

Tracking meal and break times

California state law entitles workers to a paid 10-minute rest break for every 4 hours of work and an unpaid meal break of at least 30 minutes if they work more than 5 hours. It sounds easy on paper, but enforcing these rules on the field can be more challenging with fast-paced work spread across large areas. 

Workforce.com Solution: Workforce.com’s time tracking system helps ensure that your team doesn’t miss legally mandated breaks. It sends break reminders to employees, flags missed or late breaks, and alerts managers when someone’s about to skip one. Every break taken or missed is automatically logged in the system, so you’ve got a clear paper trail come payday or audit time.

Avoiding Employee Misclassification

Misclassifying workers as independent contractors, whether by mistake or misunderstanding, can lead to legal risks. When that happens, workers miss out on wages and protections they’re entitled to, and employers can face penalties. 

To guide employers, California has provided the ABC test to help determine whether a worker should be classified as an independent contractor or not. Unless a worker operates independently, outside the core of your business, and without your control, odds are they need to be classified as an employee.

Workforce.com Solution: Classification starts during onboarding with Workforce.com. Employers can set each new hire’s status right from the beginning, helping avoid errors and payroll discrepancies later.

Managing Piece-Rate Pay

In agriculture, paying by the piece, say, per basket of fruit picked, is common. However, California has strict rules to protect piece-rate workers. You can’t just pay per unit harvested and call it a day. Workers still need to be paid for rest breaks, and their total earnings must meet or exceed the minimum wage. They’re also entitled to overtime and detailed, itemized pay stubs.

Workforce.com Solution: Workforce.com’s time and attendance tools help track every hour worked and every break taken, even for piece-rate workers. If someone’s earnings fall below the hourly minimum wage, the system automatically flags and adjusts it. It also generates detailed pay stubs showing piece rates, break compensation, overtime, and other key wage information. 

Entertainment: High Turnover, Multiple Roles and Rates, Local Labor Laws

Quick Onboarding for Seasonal Work and Rotating Crews

The entertainment industry, whether it’s theme parks, theaters, concert venues, or live events, relies heavily on seasonal staff and rotating crews. That means onboarding needs to be fast and accurate. But rushing this process often leads to errors in tax forms, missing I-9s, or incorrect employee data, all of which can cause payroll issues later.

Workforce.com Solution: Workforce.com makes onboarding fast and paperless. New hires input their own information, upload documents, and complete required forms like the I-9 and W-4 in one secure system. Everything flows automatically into payroll and scheduling.

Managing Multiple Job Roles and Pay Rates

It’s common for entertainment workers to wear multiple hats. One can be an usher one day and a merchandising attendant the next. Often, these roles come with different pay rates. Manually tracking these role changes across shifts is prone to error and slows down payroll processing.

Workforce.com Solution: With Workforce.com, you can assign pay rates by role and location. When managers build schedules, they select the job the employee is working on. Workforce.com then carries that rate through time tracking and straight into payroll. This ensures every shift is accurately paid based on the actual job performed.

Location-specific labor laws

Location-specific labor laws affect entertainment businesses operating in particular localities in California. One such law is the San Francisco Health Care Security Ordinance (HCSO). 

This law requires certain employers to make health care expenditures for employees who:

  • Work at least 8 hours in San Francisco per week
  • Have been employed for more than 90 calendar days
  • Work for a business with 20 or more employees (50 or more for non-profits)

This can cover entertainment employees who meet the criteria, such as ballpark concession workers, ushers, security, janitors, and ticket agents at locations like Oracle Park or Chase Center.

Workforce.com Solution: Much of the eligibility for the San Francisco HCSO is based on hours worked and employment duration, which are all key information that Workforce.com stores and tracks. With everything centralized, employers know exactly who qualifies, how much to remit, and when. Plus, by tracking benefits obligations in real time, you can manage labor costs more effectively while staying compliant.

Much of payroll happens even before you export that timesheet. From onboarding and scheduling to clock-ins and break tracking, every step affects how accurate and compliant your payroll will be.

Workforce.com ties all those steps together in one system. Because time tracking, scheduling, and employee data flow seamlessly into payroll, you get built-in wage and hour automation that reduces errors and keeps you compliant, whether you’re navigating complex labor laws in California or operating in a more relaxed regulatory environment.

Discover how Workforce.com simplifies payroll. Get a demo today.

Posted on

Simplifying Payroll for New Hires (and How Workforce.com Makes it Easy)

Summary

  • The first paycheck is crucial to employee engagement and can make or break employee onboarding for new hires.
  • Processing the first paycheck begins before a new employee’s first day at work, and much of it involves gathering the necessary information.
  • With the right payroll system, you can cut down time spent on approving timesheets and payroll processing by 95%.

Many things can make or break a new hire’s experience, and one of them is how they receive their first paycheck. Get it right, and you set the tone for a smooth, professional experience. Get it wrong, and you risk confusion, frustration, and a shaky start.

So, what’s the big deal with payroll? Isn’t it just a routine process? In theory, yes. But in practice, it’s anything but simple and can be time-consuming, especially for hourly teams. First runs are where small mistakes can snowball: missing information, misclassified roles, and incorrect tax setup.

Successful payroll starts long before day one. It’s about having the right systems in place, from collecting forms to tracking hours, so that everything flows naturally from onboarding to payday. 

That’s where Workforce.com can help. It connects onboarding, scheduling, timesheets, and payroll in a single system. It keeps everything in sync so you never have to chase information, avoid duplicate data entry, eliminate costly errors, and dodge any surprises come payday. 

It provides a simple workflow that makes payroll easy for payroll teams and stress-free for new hires. 

Let’s take a closer look at how it works:

Get crucial payroll information before the first day

Smooth payroll management starts with onboarding, which begins before your new hire even clocks in. 

While onboarding often focuses on culture, policies, and setting expectations, the administrative side is just as important, especially when it comes to payroll. This is where you gather key details such as tax documents, bank account info, and employee data and set job classifications and pay rates. If you go about this manually, you’re opening the door to delays, data entry mistakes, and miscalculations when processing payroll. Something as small as a missing form can derail a first paycheck.

Workforce.com makes onboarding fully digital. New hires enter their own employee information directly into the system. No double-entry or unnecessary paperwork. Tax forms, direct deposit details, and personal data all sync instantly with payroll.

If details are missing, managers are alerted and ensure that the required information is lodged before payday or even a new hire’s first day.

Pro tip: Start onboarding as soon as the offer’s signed, not the first day on the job. 

Also read: Creating a Better Onboarding Process for Hourly Staff

Download Free Template: Employee Onboarding Checklist

Set up pay rates and classifications in one place

Misclassification is a significant cause of payroll errors. For new hires, it’s essential that employers set this up correctly the first time.

With Workforce.com, everything lives in one place. You can assign pay rates, overtime rules, and employee classifications in a single system. You can also customize payroll data if needed, especially for more complicated work structures, such as employees taking up shifts at different sites or working two different roles with varying pay rates.

Need to make a change down the line? Update the info in one place, and it’s reflected instantly across schedules and payroll.

In addition, business owners get proactive tools that help catch issues before they become problems and minimize the administrative burden. Workforce.com shows how much each shift will cost as schedules are built, so there are no surprises during payroll processing. If an employee is about to be scheduled overtime, the system flags it immediately, giving you a chance to review it. It also alerts you if a rest break hasn’t been scheduled, helping you avoid compliance issues, additional payouts or violations.

Track accurate employee hours

Payroll mistakes often come from incorrect or incomplete timesheets. It can be tricky, especially if the employee joined in the middle of a pay period.

Workforce.com streamlines time tracking. Employees clock in and out through a mobile app (either on their phones or a device set up in the workplace), and their hours are instantly captured and fed into digital timesheets; no manual data entry is required. Both managers and employees can view and verify timesheets at any time, making it easy to catch and correct discrepancies early.

Also read: What is employee self-service? [Guide]

Missed a clock-in? The system alerts managers in real-time, so they can check in with staff and make quick corrections well before payroll is due. You’ll also get notifications for potential overtime or missed breaks, helping you stay compliant and avoid unplanned costs.

You’ll never have to ask, “Did we get their hours in correctly?” because you know you do. You can spot issues mid-cycle, not the eleventh hour, so payroll runs smoothly.

Automate deductions and tax withholdings with payroll software

Accurate payroll and clear pay breakdowns build trust from day one. But without the right system, deductions can be easily miscalculated, especially with an hourly team. 

Workforce.com’s payroll solution provides automation and takes the guesswork out of managing every type of deduction. Mandatory payroll taxes and withholdings, like federal, state, and local taxes, are automatically applied based on W-4 data collected during onboarding. Pre-tax and post-tax deductions are just as easy to configure. Employees receive automatically generated pay stubs with a clear breakdown of their gross pay, deductions, and take-home pay.

Also read: What are different payroll deductions? Taxes, benefits, and more

Download free template: Payroll Deduction Authorization Form

Pre-approve data and preview pay summaries

Payroll becomes stressful when pay information is inaccurate or when it’s verified too late in the process. Workforce.com helps you stay ahead by reviewing and approving data as it comes in. As shifts wrap up, you can instantly verify timesheets, check for missing logs, and receive alerts for anything that needs your attention so that nothing slips through the cracks. 

You’ll also get a clear, intuitive payroll preview that highlights exactly what’s ready to go and what still needs fixing. Because everything—scheduling, timesheets, pay rates, and deductions—lives in one system, resolving discrepancies is fast and straightforward. No switching between platforms. No chasing down spreadsheets.

Get payroll processing right from day one

The first paycheck isn’t just about getting paid. It’s a crucial moment in the new hire experience. It shows whether your business is organized or not. New employees notice and payroll is one of the clearest indicators of whether you’ve got your systems together. 

That’s why an all-in-one platform matters. Shipley Do-Nuts learned this firsthand when they switched to Workforce.com. Before, they were juggling four separate systems: one for onboarding, another for clock-ins, a third for scheduling, and a fourth for running payroll.

“Integrating all of those together has saved us so much time. It takes me about 95% less time than before, Shelly Archer, Human Resources Manager at Shipley Do-Nuts, shares. 

Want to see how Workforce.com works? Learn more about Shipley Do-Nuts’ success with Workforce.com, or book a demo today.


Posted on

Why Payroll Deductions are Harder Than They Look (Especially for Hourly Teams)

Summary

  • Payroll deductions can be more challenging to manage for hourly teams due to different factors such as variable schedules, different pay rates, higher turnover, and location-based compliance rules.
  • Handling payroll deductions for hourly teams goes beyond automation. It requires a system that can adapt to the complexities of hourly work. 
  • Workforce.com’s payroll software simplifies deduction tracking, ensuring accurate wage calculations and compliance on every pay run.

Payroll deduction may seem like a basic, straightforward task: calculate gross wages, withhold required amounts, and issue the paycheck. But for hourly workers, this can get complicated fast.

Hourly teams often have variable schedules, which means inconsistent hours and irregular pay. Plus, turnover tends to be higher for this type of worker, so business owners often onboard and offboard staff, which can also be an area of risk. When you add that to wage garnishment orders and state-based rules, it can quickly result in compliance issues, frustrated employees, and fines. 

Let’s take a look at why deductions are trickier for hourly workforces—and what employers can do to avoid common pitfalls.

Why payroll deductions are more complicated for hourly employees

If your business relies on hourly workers, here are several factors that make payroll deductions more challenging:

Variable schedules 

Hourly workers don’t have fixed salaries and hours, and therefore, their gross pay can swing dramatically from week to week. This creates challenges for applying deductions, especially when they’re fixed amounts like insurance premiums or wage garnishments. 

Here’s an example: In a biweekly pay period, an employee works 25 hours total at $15 hourly wage, earning just $375 gross. While FICA taxes are percentage-based (7.65% of gross pay), if this employee also has a court-ordered garnishment of $75 or voluntary deductions like health insurance premiums at $100, their remaining net pay might fall below minimum wage thresholds after all deductions are applied. In this case, employers would need to reduce, prorate, or defer some deductions. 

Note that aside from pay deductions, you also need to watch out for any predictive scheduling laws that may apply to you. Under Fair Workweek laws, you are mandated to create more predictable schedules for employees.

Also read: Predictive Scheduling Laws Explained: A Guide for Employers

Multi-location operations

Each state, city, or county, may have its own rules for income tax withholding, minimum wage, and even pay frequency. And if you’re operating in multiple cities and states, it can lead to challenges with compliance and applying correct deductions. 

For instance, a worker in California is subject to state income tax and State Disability Insurance (SDI) deductions, while an employee in Texas isn’t. If your system doesn’t account for location specific rules, you can easily over- or under-withheld taxes from employees, leading to compliance issues. 

And it becomes even more trickier especially when you have employees working in multiple jurisdictions at a time. So for instance, you have neighboring stores in Emeryville and Oakland in California, and you have a worker who worked in both locations in one pay cycle. You need to properly calculate their wages not just on the number of hours, but also on where those hours are worked. Make sure your system supports different hourly rates, especially when employees work across roles or locations.

High turnover rates

Turnover rates are typically higher for industries that employ hourly teams, which can introduce several challenges for payroll and deductions. Because onboarding and offboarding are more frequent, employers may forget to prorate certain deductions, miscalculate withholdings for departing employees, misclassify employee status, and increase the administrative burden on payroll teams when processing these deductions.

Best practices for payroll processing and deductions

Automate payroll, but…

Not all payroll systems are built for hourly teams. You need one that accounts for the nuances of hourly operations. 

Like many things in HR, payroll deductions are not a set-it-and-forget-it kind of thing. They can change depending on several factors, and you need a system that can automate even the way you deal with different nuances that affect payroll computations and deductions.Here’s what to look for in a payroll service provider or software:

  • Centralized system – Keep everything connected, from onboarding, to scheduling, to payroll. Much of payroll happens way before you process time and attendance. It begins as early as employee onboarding. For instance, collecting a new hire’s Form W-4 is essential, as it determines how much federal income tax to withhold from their pay. If this form is missing or outdated, it can throw off your deductions and lead to compliance issues.

    A system that keeps information in sync across time and attendance, payroll, and employee scheduling ensures accurate pay calculations and correct employee classifications without switching between modules and multiple data entries.
  • Labor compliance engine – Your system should automatically apply federal, state, and local labor rules to stay compliant every pay run.
  • Time and attendance integration. Manual timesheets slow down payroll processing and increase the risk of inaccurate computations, including deductions. Avoid manual errors. Use digital time tracking to feed clean data directly into payroll. A system that simplifies tracking employee time, supports varying hourly rates, and generates timesheets is the way to go.
  • Secure recordkeeping. Documentation is vital for payroll. The Department of Labor and IRS have retention requirements that organizations must adhere to. Payroll records must be stored and accessible for audits or employee requests without digging through spreadsheets.

Payroll calculations and deductions would be significantly more straightforward when you have the right system. Workforce.com handles all of this automatically. From employee classifications, pay rate calculations, and deduction rules to recordkeeping requirements, it ensures everything’s accounted for and compliant.

Know the deductions you’re working with

Even with a solid payroll system, your managers still need a working knowledge of wage rules and deduction types. This helps ensure everything runs as it should and gives your team the confidence to spot errors or answer employee questions on the fly. 

Payroll deductions fall into two main categories—mandatory and voluntary. Here’s a quick overview of what your team should be familiar with. 

Mandatory deductions

As the name suggests, these are amounts that employees must pay, and employers must deduct from their staff’s wages. Statutory deductions take up a considerable portion of mandatory deductions, and these are amounts to meet tax obligations and fund essential public services like Social Security, Medicare and state programs. Here’s a list of statutory deductions that are mandated by law: 

  • FICA (Federal Insurance Contributions Act) – for Social Security and Medicare tax
  • Federal income tax
  • State and local taxes

Wage garnishment is another form of mandatory deductions. It is based on a court order mandating employers to withhold a portion of an employee’s pay for financial obligations or debts, such as child support, student loan payments, tax debts, and personal debts. 

Voluntary deductions

Voluntary deductions are optional and can enhance employee benefits. Retirement plan contributions, health insurance benefits, union dues, and charitable donations are examples of voluntary deductions. Before employers can withhold amounts under this category from an employee’s paycheck, they must secure written authorization. 

It’s also important to distinguish between pre-tax and post-tax deductions. Common examples of pre-tax deductions include HSA contributions, health insurance premiums, and 401(k) contributions. Pre-tax deductions can also lower an employer’s liability for the Federal Unemployment Tax Act (FUTA), which funds unemployment benefits for workers who have lost their jobs.

Meanwhile, Roth IRA contributions or union dues, are taken out after taxes have been applied. Understanding the order and type of deduction is key to accurate payroll and compliance.

For a more in-depth look at the different types of payroll deductions and how they are calculated, read this guide.

Having a good grasp of how payroll deductions work will also help you manage unusual and tricky scenarios better, such as:

  • What happens when an employee works a shift in a different city? How does that affect taxes or local withholding? 
  • What if a new garnishment order comes halfway through a pay cycle? 
  • What if a deduction pushes net pay below the minimum wage threshold? 

An automated system can handle these situations, but it’s just as important for managers to understand the “why” behind the numbers. That way, they can explain deductions to staff clearly, catch potential system errors, and ensure nothing slips through the cracks.

Download: Free Payroll Deduction Authorization Form

Watch for changes that affect deductions

Did an employee receive a raise? Change their benefits? Update their tax withholding? Went from part-time to full-time?

Any change to salary, benefits, or classification should prompt a quick audit to ensure payroll deductions stay accurate. But don’t forget about tax forms, either. If an employee submits a new W-4 form to update their filing status or withholding preferences, it should be reflected in your payroll system immediately.

Failing to update these changes can lead to incorrect deductions, under- or over-withholding, or even compliance issues. A centralized system that syncs employee data across payroll, time tracking, and HR makes it easier to catch and act on these updates before they cause problems.

Keep pay stubs clear and accessibleEmployees should always be able to see how their pay is calculated, from gross income to deductions to final take-home pay. Clear, transparent pay stubs build trust and cut down on confusion. Your payroll system should generate and distribute them automatically, without extra admin work. It would be even better if employees could access their pay stubs anytime, from any device, without needing to chase down HR for answers.

The smarter way to manage payroll deductions

Payroll deductions are never as simple as they look, especially for hourly teams. But with the right system and tools, they can be one less thing to worry about every pay run. 

The key here is to automate and use tools that will allow you to calculate gross wages, factor in deductions, account for unique situations and nuances, and stay compliant at every step. That’s where Workforce.com can help you. 

Workforce.com is built for hourly operations. It calculates gross wages, applies accurate deductions, handles different pay rates, accounts for federal and state rules, and keeps records audit-ready. From onboarding, tracking work hours, assigning shifts, managing PTOs, and running payroll, the system keeps everything connected and compliant. 

From onboarding, employee classifications, assigning shifts, tracking work hours, managing PTOs, handling different pay rates, and complying with state and federal rules to calculating payroll, the system can automate it, save you time, and significantly reduce the risk of errors.  

Ready to simplify your payroll? Book a demo to see how Workforce.com helps hourly teams stay on top of payroll, HR, and workforce management.

Posted on

5 Tips to Simplify Overtime Calculations

Summary

  • Challenges with overtime calculations don’t just come with the math. It’s all the manual processes involved, especially with different pay conditions and compliance rules.
  • Overtime calculations can be simplified. In fact, an LA-based organization reduced time processing timesheets by 92%.
  • Payroll software can significantly reduce errors and time spent on calculating overtime.

Overtime pay calculations can feel like a full-time job, even if it’s just one of the many things that go into payroll. Different pay rates, tracking total number of hours, changing schedules, and compliance rules make it tricky, especially when you’re running an hourly team on multiple shifts. When you dig deeper into it, however, the real problem isn’t the math. It’s the manual work. 

So, how can you simplify the process, reduce errors, and ensure that employees are paid on time? Here are five practical ways to do so.

1. Improve your onboarding process

Onboarding is not just about welcoming new hires. It’s about setting up systems that make payroll, including overtime, easier to manage.

When we think of onboarding, we usually focus on getting new hires up to speed and integrated into the team. But the behind-the-scenes admin work during this stage plays a massive role in how seamless (or messy) payroll and overtime processing will be down the line.

Proper onboarding ensures accurate classification from day one. If you misclassify employees (exempt vs. non-exempt), you can face overtime compliance issues later on. This is also the perfect time to set clear expectations around overtime—when it kicks in, what overtime premium rates apply, straight time pay policies, and other relevant conditions.

Onboarding is also the time to get new hires up and running on your time-tracking system. 

Show them how to clock in and out correctly and how time logs are generated into timesheets. Getting new hires set up in your time-tracking system early prevents payroll errors later.Onboarding on its own can feel like too much admin and paperwork. Workforce.com has an automated system for getting new hires onto your system. New hires get a link to the onboarding platform and input their information, minimizing errors and admin work for your team. You can also upload contracts, handbooks, and other key documents, plus create employee profiles with base pay and classifications.

2. Automate time and attendance tracking

Employee work hours are at the core of processing payroll and calculating overtime pay. Manually processing timesheets and payroll is not only time-consuming but also increases the risk of payroll errors, underpayments, and compliance issues. 

An automated time and attendance system ensures all hours of work are recorded accurately, so you don’t have to second-guess overtime calculations. Workforce.com captures time logs through a tablet placed on your job site or directly from an employee’s mobile phone. The system logs location data, which is essential if you manage teams in different locations. 

Clock ins and outs are generated into timesheets, indicating the total number of hours. Overtime hours are flagged, and managers can quickly review and approve in seconds and fix any discrepancies before payroll processing. 

For Lisa Hanna, business manager at Ethos Orthodontics, payroll used to be a three-day ordeal. “Generally, I’d spend a few hours each Sunday printing out and processing timesheets to get them ready for payroll that week,” she shared.

With Workforce.com, Hanna got her Sundays back as the system prepared the timesheets for her. It now only takes a few clicks to approve and export timesheets for payroll, reducing the admin load and compliance risks.

3. Set overtime alerts

Overtime is sometimes necessary, but it shouldn’t be eating into your budget unless it absolutely needs to. 

Workforce.com keeps overtime under control with real-time visibility. When scheduling, managers get an alert when an employee is scheduled for more than their regular hours. If it’s intentional, great—no surprises on payday. But if it’s an accident? You can fix it before it turns into an unnecessary payroll expense.

The system also flags when employee hours are about to hit overtime. If someone’s shift is over but they’re still clocked in, managers get notified. At that point, they can check in: Did the employee forget to clock out? Are they actually working? If so, is overtime work truly needed, or can the task wait until the next shift?

These real-time alerts prevent unplanned overtime, keep labor costs in check, and even promote better work-life balance for your team.

4. Use payroll software

Payroll software can simplify overtime calculations, but only if it’s built to handle the complexities of your workforce. 

Consider your payroll needs and go for the solution that meets your requirements. Whether you’re looking for software or planning to switch to a different system, consider the following: 

  • Overtime and labor laws – Can it keep up with changing labor laws? Does it account for both federal and state overtime rules? Can it automatically update tax rates?
  • Integration and data entry – Does it sync well with time tracking and HR? Can data flow smoothly from one module to the next, or will you be stuck with manual entry?
  • Customization – Aside from employee’s regular rate, can it handle shift differentials, different rates, fluctuating workweeks, non-discretionary bonuses, weighted average calculations, and other conditions and exemptions?
  • Ease of use and implementation – How long does it take to roll out? Can employees actually use it without a steep learning curve? Even the most advanced features are useless if your team avoids the system. 

Mikhuna, an LA-based food truck business, teamed up with Workforce.com to simplify payroll processing, time and attendance tracking, and employee scheduling. Because everything is now done on a single platform, they saw a 92% decrease in time spent correcting timesheets and saved three hours on payroll processing.

“It used to take me between two to three hours to run payroll,” Cynthia Carreiro, Mikhuna’s CFO, shared. “Now it takes no more than 3 minutes.” 

Beyond saving time, Mikhuna also gained real-time visibility into labor costs. “A year from now, I’ll be able to look back at a pay run from the same time last year and see if I’m losing or making money,” Carreiro adds.

When payroll software is built right, it doesn’t just save time. It gives you the insights you need to make smarter business decisions.

5. Understand overtime rules that apply to your workforce

Even with the best payroll software, your managers and HR team still need a firm grasp of how overtime rules work not only for processing payroll but also for answering employee faqs. 

At the very least, managers should know existing federal laws and state rules around overtime. Under the Fair Labor Standards Act (FLSA) rules, nonexempt employees must receive overtime pay for hours worked in excess of 40 in a workweek at one and a half times their regular rate of pay. But here’s the kicker—what actually makes an employee exempt or nonexempt? The Department of Labor set the guidelines on what makes an employee exempt or non-exempt to overtime pay. While hourly employees are typically non-exempt, salaried employees may also be entitled to overtime if they meet the criteria on salary levels and job duties.

What about regular rate of pay calculations? What goes into in exactly? Aside from regular hourly rate, salaries (for salaried, nonexempt employees), nondiscretionary bonuses, shift differentials, piece-rate pay, and commission must be included in the computation.

Leadership teams should be able to provide a clear, high-level explanation on these areas, especially when they concern employees’ total compensation.

Also read: Exempt vs. non-exempt employees: knowing the difference

If you operate in a state with stricter overtime laws, that’s another layer of compliance to manage. Take California, for example. Daily overtime is recognized in California, which means that workers are entitled to overtime payments when they work more than 8 hours in a single workday or over 40 hours in a single workweek. This is different from FLSA rules, which calculate total overtime based on hours worked in a 40-hour workweek rather than a single workday

The overtime pay rate also varies in California. Employers must pay one and a half times the regular rate of pay after 8 hours a day. But double time or twice the regular rate of pay takes effect for employees who work after 12 hours a day or after 8 hours on the seventh consecutive workday.

Also read: California Overtime Laws Explained: What Employers Need to Know

Payroll software can handle the calculations for you according to applicable federal and state laws. However, your team still needs to understand the rules, both to ensure your systems are running correctly and to confidently handle employee questions.

Stop Working Overtime to Calculate Overtime

Calculating overtime wages shouldn’t steal your weekends or keep you at the office late. With the right system, you can automate not just the math but also streamline its administrative side.

Workforce.com automatically calculates overtime, no matter how complex your pay setup is. Whether you have shift differentials, double time, fluctuating workweeks, or non-discretionary bonuses, the system handles it all.

It also keeps up with labor laws to ensure compliance at every step. Need to update an employee’s pay rate or adjust your overtime policy? Just enter it once, and the system updates everything—from time tracking to payroll—without extra work on your end.

Overtime shouldn’t be an admin nightmare. See how Workforce.com makes it simple for businesses worldwide. Check out our customer stories or book a demo today. 

Posted on

What are different payroll deductions? Taxes, benefits, and more

Summary

  • Employers are legally required to withhold portions of employee paychecks for federal income taxes and FICA contributions. Employers may also withhold amounts for voluntary deductions such as retirement plans and health insurance premiums when authorized by employees.
  • Managing payroll deductions can be complex, involving intricate calculation rules, varying employee statuses and preferences, and ever-changing labor regulations.
  • Workforce.com simplifies payroll by automating accurate calculations and ensuring the correct deductions are applied every time.

Payroll deductions are withheld from an employee’s paycheck to cover taxes, garnishments, or benefits like health insurance. While federal and state taxes are statutory and legally mandated, options like retirement savings or supplemental insurance fall under voluntary deductions. Deductions are further classified as pre-tax or post-tax, depending on when they’re applied in the payroll process.In this guide, we’ll break down the types of payroll deductions, explain how they work, and share tips to ensure accuracy every pay period.

Mandatory vs. Voluntary Payroll Deductions

Payroll deductions are primarily mandatory or voluntary. As the name implies, mandatory deductions are amounts employees must pay and employers must withhold or deduct. This includes statutory deductions mandated by law, such as federal income taxes and Social Security. 

On the other hand, voluntary deductions are amounts taken out of an employee’s paycheck with their consent. These are typically for retirement accounts, health insurance, and charitable donations. 

Mandatory deductions

Statutory deductions

Statutory deductions are amounts that employers withhold from staff paychecks to meet tax obligations and fund essential public services like Social Security, Medicare, and state programs. 

Here are the statutory deductions that employers must withhold to comply with the law:

FICA taxes

FICA (Federal Insurance Contributions Act) taxes are a type of statutory deduction used to pay for Social Security and Medicare. 

Employees pay 6.2% of their salary toward Social Security tax. The contribution limit or cap on this amount is based on the wage an employee earns. For 2025, the wage base limit is $176,100.

Medicare tax is 1.45% of an employee’s pay and includes no cap. Employees who earn more than $200,000 could be subject to (based on their filing status) paying additional Medicare tax. More information can be found here on the Internal Revenue Service (IRS) website.

Federal income tax

Federal income tax is an amount deducted from every employee’s salary. The federal government sets different percentages to be paid as taxes on gross salaries based on a person’s income. The taxable brackets start at 10% and go up to 37% of someone’s gross pay.

Federal income tax is calculated progressively. That said, taxes on wages are not computed in its entirety by a certain percentage alone. It means that different portions of an individual’s income are taxed at increasing rates. For instance, a single individual has a taxable income of $65,000. That employee’s federal tax liability will be charged as follows according to 2025 rates:

  • 10% on the first $11,925 = $1,192.50
  • 12% on the next $36,550 ($48,475 – $11,925) = $4,386
  • 22% on the remaining $16,625 ($65,000 – $48,475) = $3,635.50

Total Tax Liability: $9,214

State and local income taxes

Employers must also withhold state and local income taxes, depending on where their employees work or live. How these taxes are calculated varies. Some states follow a similar progressive model as the federal government, others impose a flat rate, and some states don’t impose income taxes at all. 

In addition to how state income taxes are calculated, you need to be aware of reciprocity agreements if an employee works in one state and lives in another. 

It’s important to note that while mandated by law, not all workers are subject to statutory deductions. For instance, independent contractors are not subject to Social Security or Medicare tax withholdings. If you need clarification on a worker’s classification, the IRS offers support through Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. This form helps clarify whether a worker should be treated as an employee or an independent contractor.

Wage garnishments

Wage garnishments are payroll deductions based on a court order mandating an employer withhold a portion of an employee’s paycheck to pay for financial obligations or debt. Child support is a typical garnishment, but it can also be for other purposes, such as payments for student loans, tax debts, and court judgments for personal debts. The employer must calculate wage garnishments based on federal and state limits. As soon as the court order for garnishment is received, employers are obliged to apply the deduction and notify the employee.

Voluntary deductions

Unlike mandatory deductions, which fund government programs or fulfill obligations like child support payments, voluntary deductions are optional and enhance employee benefits. Common examples include: 

Retirement contributions

Employees can voluntarily set aside funds for their retirement. Popular options include 401(k) plans and Individual Retirement Accounts (IRAs), which employees can opt into if offered by the employer.

Health and welfare benefits

Employees can also opt to have health insurance premiums deducted from their paychecks for themselves and their dependents. Contributions to a health savings account (HSA) can also be taken with the worker’s consent.

Supplemental insurance coverage

Premiums for additional coverage, such as extended group life insurance, are voluntary. While employers may provide a base plan, employees can pay extra for added protection directly from their paycheck. 

Union dues

Union members can authorize their employers to deduct their union fees and dues from their paychecks. 

Savings and investment programs

Payments for employee stock purchase plans or amounts allocated for direct deposit to savings plans are a couple of examples of voluntary deductions geared toward employee savings and investment.  

Charitable donations

Employees can elect to have their donations to charity be deducted from their pay.

Voluntary deductions provide convenience to employees in managing their benefits and savings plans. However, employers must secure written authorization before processing these deductions to ensure compliance and transparency.

Download: Free Payroll Deduction Authorization Form

Pre-tax vs. Post-tax deductions

Payroll deductions are categorized as pre-tax or post-tax, depending on when they are taken from an employee’s earnings. 

Pre-tax deductions are withheld from an employee’s gross wages and can reduce the employee’s taxable income. However, they may still be subject to FICA taxes. Common examples of pre-tax deductions include HSA contributions, health insurance premiums, and 401(k) contributions.

Pre-tax deductions also reduce the amount a business owner has to pay toward federal unemployment tax (FUTA). FUTA is the system that provides compensation to people who have lost their jobs.

On the other hand, post-tax deductions are withheld from an employee’s net pay, meaning taxes have already been calculated and applied. While they don’t reduce taxable income, benefits or contributions made in this category often provide tax-free withdrawals or benefits in the future. Examples include Roth IRA contributions, charitable donations, and wage garnishments.

Stay on top of payroll deductions with Workforce.com

Managing payroll deductions is rife with complexities and challenges, from navigating regulations and unique state rules to managing employee updates, multiple voluntary benefits, and garnishments. Without the right tools, these tasks can quickly become time-consuming and prone to errors. That’s where Workforce.com steps in. 

Here are some of the ways Workforce.com can simplify payroll deductions. 

Onboarding

Accurate payroll starts with proper employee classification. Workforce.com has a strong onboarding system that ensures you have all the necessary information to classify employees correctly. It also handles necessary paperwork such as employee contracts and tax forms such as W-4. 

Centralized employee records

Workforce.com centralizes employee data within its payroll system, ensuring a single source of truth. Any updates to employee information, like changes to voluntary deductions, are instantly reflected across the platform, ensuring consistency. 

Time and attendance tracking

Accurate payroll depends on precise time tracking, especially for hourly employees.

Workforce.com’s time-tracking system ensures employees clock in and out correctly using mobile devices or kiosks. Missed punches trigger alerts, so issues are addressed immediately. The data flows directly into payroll processing, ensuring accurate timesheets and gross wage calculations.

Payroll

Workforce.com has a payroll system to calculate employee wages based on classifications, pay rates, timesheets, and corresponding deductions according to what’s mandated and what employees authorize you to withhold. All of these are automated and can be done in minutes.  

Recordkeeping

Workforce.com ensures that payroll records are kept safe and can be easily accessed in case of audits or employee inquiries. 

Managing payroll deductions is crucial not only for complying with tax laws but also for maintaining employee trust. Understanding the nuances of these deductions is vital to ensuring regulatory compliance, optimizing payroll processes, and supporting employee financial well-being.See Workforce.com in action and learn how it can improve your payroll processing and more. Book a demo today.