💰There are two basic types of compensation: salaries, based on an annual rate of pay, and wages, based on an hourly rate multiplied by hours worked.
📋Payroll deductions may include government-required amounts, such as Federal Insurance Contributions Act (FICA) tax, as well as other withholdings for federal, state, and city income taxes.
💸Each paycheck shows the employee's gross earnings, deductions, and net pay, which is the result after subtracting total deductions from gross earnings.
📆Employers are required to prepare and submit Form W-2, which reports employees' earnings, taxes withheld, and benefits received. Additionally, they may have to file Form W-3, a company-wide summary of all issued W-2 forms.
🔒Internal controls play a crucial role in payroll processing by ensuring that the right people are paid the right amount and reducing the risk of errors and fraud.