Business success is about making the right decisions. For a business that pays its employees on a semi-monthly basis, deciding how to account for semi-monthly payroll is vital for your business success.
There are dozens of pay periods, but four are the most common and widely practiced. They include:
- Semi-monthly pay
- Bi-weekly pay
- Monthly pay
- Weekly pay
One significant difference between accounting for semi-monthly payroll and any other payroll period is that you make calculations on a semi-monthly basis when accounting for a semi-monthly pay period. But with the different pay periods, you can make calculations weekly, monthly, or bi-weekly.
What is Payroll Accounting?
Payroll accounting is the process of documenting records for employee remuneration. A payroll accountant would need to record employee compensation, calculate the employee share of taxes, track the amount of money withheld from employee paycheck, and calculate the employee benefits.
Like you would imagine, employees love them because it’s their job to make sure that they are compensated adequately for work done. It is also the payroll accountant’s responsibility to ensure that financial operations are carried on smoothly in the organization.
When it comes to accounting for payroll, you require a specific skill and expertise to correctly enter the information. Here’s a comprehensive list of what you should include when recording employee compensation:
Gross salaries, wages, bonuses, and commissions:
You should account for all the earnings the employee made in the period under consideration. These earnings should include the annual salary, any additional wage, and any overtime pay if available.
Also, confirm if any employee received a commission or bonus on contracts they secured for the organization. Some of these benefits may include:
Employer fringe benefits:
As a payroll accountant, you must include the cost of the benefits accruing to an employer. Such benefits may include dental benefits, paid holidays, workers and retirement compensation, and healthcare fees, among many others.
Withholding of insurance premiums, salaries, and saving plans:
Although it depends on the kind of benefits an employer offers, they can withhold employee healthcare premiums. Some other pieces of employee salaries that you can withhold are contributions to NGOs and savings for retirement.
Withholding employee and employer taxes:
When you withhold tax from an employee’s salary, the accountant should record it separately. Liberty is granted to an employee to say how much he wants to withhold in the W-4 form.
Determining the amount of tax to be withheld is a reason they have to fill out the W-4 form on the first day of employment.
How to Account for Semi-Monthly Payroll
To account for semi-monthly payroll, you only have to take the following steps:
Step 1- Get a Payroll Authorization Form Ready
Get a payroll authorization form for every employee that works in your company. The authorization form should contain details about the employee’s name, tax status, social security number, pay rate, and job classification.
Step 2- Get an Automated Time Tracking System
A time tracking system is essential to keep track of when an employee works and how long he/she works. Like you must have observed, many organizations use a time card to monitor employees’ busy time.
A timecard will show you when an employee arrives and leaves the workplace.
Step 3- Gather All the Payroll Inputs
The next step is to gather the payroll inputs from the past two weeks. The payroll inputs should include time cards for employees who earn at an hourly rate, payroll authorization forms for employees who earn salaries, and payroll authorization forms for the newly hired employees.
Step 4- Calculate the Gross Earnings
At this stage, we’ll be calculating the gross earnings of employees for the semi-monthly period. It’s quite simple to determine the gross income for the hourly employees. You only have to multiply the hours worked by the hourly wage, and you’ll have it.
For salaried employees, their gross earning is half of their monthly payments. You can also calculate their gross income as a fraction of their annual income. That is 1/24 multiplied by their yearly salary.
Step 5- Calculate the Net Earnings
You can calculate the net earnings by subtracting payroll deductions from gross wages. Some of these deductions may include union dues, Medicaid taxes, insurance payments, state and federal income taxes, social security, pension payments, and charity contributions.
And yes, the net earning is the actual amount that each employee receives.
Step 6- Maintain Payroll Records
Maintain payroll records by documenting which employees you paid, how much you paid them, and when you paid them. These records will help ensure that your company complies with the government’s payroll reporting laws.
Step 7- Record Payroll Expenses
Enter the payroll expenses as a liability in your accounting record. We recommend that you enter it first into the ledger’s liability column, after which you can transfer it to more permanent financial statements.
Some examples of permanent financial statements include a cash flow statement, comprehensive income statement, and financial position statement.
Finally, track the movement of payroll funds from your bank account to the employee’s bank account. Tracking payroll payments will help ensure greater accuracy of records.