The payroll cycle
- Track hours every day on a timesheet or time card.
- Review and approve before the payroll cut-off. Fix missed punches now.
- Work out gross pay: regular hours × rate, plus overtime, double time, holiday and shift premiums, plus vacation pay if it is paid on each cheque.
- Take off deductions to get net pay.
- Pay and give a pay statement showing hours, rates, gross pay, deductions and net pay.
- Send remittances (taxes and contributions) to the government on time, and keep the records.
Pay periods in a year
| Pay frequency | Pay periods | Hours per period (40-hr week) |
|---|---|---|
| Weekly | 52 | 40 |
| Bi-weekly | 26 | 80 |
| Semi-monthly | 24 | about 86.67 |
| Monthly | 12 | about 173.33 |
A full-time year is 2,080 hours (40 × 52). At $30 an hour that is $62,400 before overtime.
Gross pay to net pay in the United States
- Federal income tax is withheld based on the employee’s Form W-4.
- Social Security is 6.2% of wages up to the yearly wage base, and Medicare is 1.45%, plus an extra 0.9% on wages over $200,000. The employer pays a matching 6.2% and 1.45%.
- State and local income tax applies in most states.
- Voluntary deductions: union dues, health plans, 401(k) and similar.
Gross pay to net pay in Canada
- Federal and provincial income tax based on the employee’s TD1 forms.
- CPP contributions (the QPP in Quebec). The employer matches the employee’s contribution.
- EI premiums. The employer pays 1.4 times the employee’s premium.
- Union dues and assessments: on construction wage sheets, field dues and council funds are taken off the hourly wage.
Rates and maximums for Social Security, CPP and EI change every year. Use the current tables from the IRS or the Canada Revenue Agency, or payroll software, for real withholding.
Vacation pay and premiums
In Ontario, vacation pay is at least 4% of wages (6% after five years). Many construction agreements pay 10% or more on every cheque. Shift premiums, such as 15% for afternoon and night shifts, and holiday premiums are part of gross pay too. The calculator handles all of them in Union agreement mode.
Payroll checklist for small crews
- Set one workweek for everyone (for example Sunday to Saturday) and stick to it.
- Collect signed timesheets by the same day every pay period.
- Check overtime against the right rule: federal, state, province or your collective agreement.
- Pay on the same schedule every time, with a pay statement.
- Keep timesheets and payroll records for at least 3 years.
Sources: US Department of Labor: Overtime Pay · Ontario: ESA guide, overtime pay
Questions
What is the difference between gross pay and net pay?
Gross pay is everything earned before deductions. Net pay is what is left after income tax, Social Security and Medicare (US) or CPP and EI (Canada), union dues and other deductions.
How many pay periods are in a year?
Weekly pay has 52 pay periods, bi-weekly 26, semi-monthly 24 and monthly 12.