What is payroll?
Simply put, payroll is the process of paying your employee for work performed. This work can be paid hourly, by piece or unit, salary, or other method. Gross wages represent the pre-tax earnings of an employee before income tax withholding, employment taxes, state income tax withholding (where applicable), state unemployment tax (where applicable), local income tax (where applicable), voluntary deductions (i.e. medical insurance), and involuntary deductions (i.e. child support). The amount remaining after all of these deductions is commonly referred to as net pay or take-home pay.
In addition to calculating and processing these deductions to gross pay, the employer is also responsible for paying various employment taxes, which result in an increase in total payroll expense beyond that of the gross wage. These employment taxes include FICA, FUTA, and various state specific employment taxes. All of the employee's income tax withholding along with the combined employee and employer employment taxes, must be deposited with the IRS on a strict schedule. Finally, it is the employer's responsibility to file quarterly (941) and annual (940, W-2, W-3) payroll tax returns to report on all payroll activity during the period.
In addition to these direct payroll expenses, most companies are also required to pay other indirect payroll expenses, such as worker's compensation insurance premiums. Although these payments are generally made to private insurers, they are nevertheless required by the government.