How to Pay Your Employees
The last few weeks we have been discussed “When to Hire an Employee,” whether you “Should You Hire an Employee or an Independent Contractor?”, and “Laws and Forms Needed When Hiring a New Employee”. This week will discuss how to pay your employees.
Hourly Paid Employees
If you have chosen to pay your employee an hourly wage, you will need to:
- Follow the minimum wage rate for federal or state, whichever is higher.
- Pay overtime if your employee works more than 40 hours in a week. Even if you pay every two weeks you are still required to pay overtime for over 40 hours worked. Holiday hours or other non-working pay hours are not included in overtime pay. For example, you would not include holiday hours when determining overtime. Your employee will be required to actually work 40 hours and then he will be paid overtime.
Calculate Employee Tax
In order to determine the correct amount of taxes to deduct from your employee’s pay, you will first need to determine their gross pay.
Gross pay is the total amount paid to an employee each pay period. Gross pay includes regular pay, overtime and paid-time off, holiday, and vacation or sick pay.
You calculate gross pay by multiplying the number of hours worked in the pay period times the hourly pay rate. Overtime pay is also included in the gross pay calculation.
Federal Income Tax
Federal Income taxes include Social Security and Medicare. Federal income tax is the gross pay less any retirement savings and/or flex play items deducted from the employee’s pay. The amount of tax to withhold is dependent on the Form W4 filled out by the employee. You look up the withholding amount in the withholding tables found in the employer’s tax guide, the IRS Publication 15 or also called the Circular E.
State Income Tax
State Income Tax uses the same gross pay and depends on the WT-4 New Hire Form in Wisconsin. Each state has their own tables for the amount to be withheld.
All deductions from pay other than taxes require a signature from the employee regarding the type and the amount they give permission to deduct from their pay. Carefully review each deduction to make sure that you have written permission from the employee before you subtract from your employee’s pay check.