Running a successful business is more than paying your staff. While utilizing human resources, it’s also important to calculate loss, fines, and other benefits to keep your employees happy. Payroll calculation contributes in this regard.

And knowing your company’s payroll helps decide whether hourly or monthly wages are the best option. It can help you figure out whether you can hire additional people as well.

So, how do you calculate employee payroll? Let’s find out throughout the article.

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How do you calculate employee payroll?

Calculating payroll is simple. You can do the math yourself, utilize an online calculator, or use software for the process. However, you have to know the payroll system of the respected country—for example, Payroll in Bangladesh.

Most payroll calculation starts with calculating gross compensation and then deducting taxes to create the final paycheck. The gross compensation can include hourly or salary options. 

These gross wage estimates and deductions are based on various factors in each circumstance. Here are some general rules and examples to keep in mind.

Calculating hourly gross wages

Many companies pay their employees by the hour. This necessitates keeping meticulous records of working hours. 

The method requires that you maintain track of time. It determines how many hours must be reimbursed and whether any compensation changes, like overtime or disaster pay, are necessary.

For example, if a $20-per-hour employee works 50 hours per week, 10 of which are overtime hours, the equation is as follows:

40 hours worked at regular rate of $15 per hour: 40 x 20 = $800

10 hours worked at overtime rate of $25 per hour: 10 x 25 = $250

Total Gross Pay for the week: $800 + $250 = $1,050

Calculating salaried paychecks

Salaried wages are easier to calculate because they are based on a certain number of hours — usually, a 40-hour workweek — and they are decided by the pay period plan you choose.

Some businesses choose to pay employees semimonthly, which means twice a month for 24 billing cycles. On the other hand, others choose to pay employees every two weeks for 26 pay periods.

For this example, considering a typical preset 40-hour weekly work and a yearly income of $67,000, the gross pay computation would be:

Divided by 24 pay periods, a $75,000 annual salary equals: $75,000 / 24 = $3,125

Deducing voluntary activities

In addition to monetary remuneration, many companies with full-time employees provide additional benefits. Most of these incentives are provided on a “pre-tax” basis, whether retirement savings, healthcare, or any other related possibilities.

If an employee has chosen to deduct benefits from their salary, they must be deducted in the legally required step of the process, whether “pre-tax” or “post-tax.”

Subtracting local and federal taxes

The most difficult portion of the process begins after any required benefits have been withdrawn from the employee’s paycheck. Every business must understand and appropriately implement payroll taxes.

Those in charge of payroll should be familiar with federal taxes, including FICA (Federal Insurance Contributions Act) and unemployment insurance. They should also keep track of any state or municipal taxes that may apply to their company and what should be deducted from employees’ gross compensation.


It’s critical to know how to compute payroll. It guarantees that your company complies with local labor and tax laws and gives your employees confidence that their contribution will be properly reimbursed.

As you recruit more people, calculating payroll gets increasingly difficult. However, keep in mind that the steps are nearly identical. The main objective is to pay its employees correctly and on time.

While some businesses prefer to do everything by hand, others rely on online tools such as software or online payroll calculators. To prevent penalties, acquaint yourself with tax guidelines and federal payroll standards to calculate payroll regardless of your software.