If your business has employees, running payroll frequently and accurately is the least you can do to ensure your employees are satisfied with their jobs and will stay by your side through thick and thin.
But let’s face it: not everyone who runs payroll, HR specialist or not, is a CPA or accounting expert. If you’re in charge of payroll, you might be scared of making a mistake and spend too much of your time combing for errors or running payroll too infrequently as a result, resulting in wasted time.
If this sounds like you, there’s an easy solution on the horizon: a paycheck calculator.
What is a Paycheck Calculator?
A paycheck calculator is a financial tool that takes an employee’s gross pay, W2 information, withholding information, and pay schedule and uses it to calculate the employee’s taxes and net pay at the end of each pay period.
Now, an HR professional or business owner could technically run all these calculations by hand using the tax bracket information on the IRS’s website and information about their state and local tax deductions.
But a paycheck calculator makes the process so much easier, which is why we recommend it for any business running payroll. And they’re free, to boot!
If you’re not convinced, here are four concrete benefits of having a paycheck calculator on hand for your business.
1. Run Payroll Accurately
First and foremost, a paycheck calculator helps your business accurately calculate your employee’s net salary, deductions, and taxes – all with a simple push of a button. There’s no need for Excel spreadsheets or hand-crunching. With a paycheck calculator, running payroll is simply a matter of leisurely writing out checks using the information from the calculator.
Plus, with an objective calculator on hand that employees can use as well, a business can protect itself from accusations of wage garnishment or improper calculations. Both HR and employees will rest assured that all paychecks are accurate.
2. Pay Taxes Correctly
Next, a paycheck calculator helps businesses determine how much income tax should be withheld to pay the federal, state, and local governments. A person’s payroll taxes vary depending on factors such as their tax bracket, marital status, number of dependents, and location, making calculation a serious headache.
Recall how hard it is to file your own taxes – now compound that by the number of employees you have, and think of the migraine you’ll get trying to run payroll yourself!
A paycheck calculator takes all this information and calculates taxes accurately, ensuring you don’t over-withhold by taking too much from employees’ paychecks or under-withhold by not taking enough. Both of these cases would result in time spent later making adjustments to reconcile the balance owed, either by refunding the employee or withholding more money from future paychecks.
3. Enables More Frequent Pay Runs
As paycheck calculators enable you to calculate net pay accurately with the click of a button, this also means that HR professionals can now run payroll more frequently with less stress.
Without a paycheck calculator, a company may be weary of running payroll too often, mindful of the hours and hours of number-crunching numbness calculating each run may take. A company might resort to paying employees as infrequently as their state’s laws allow, such as on a monthly schedule.
However, employees are eager to be paid for their hard work and are more attracted to jobs that provide a more frequent pay schedule – say weekly or biweekly. That means that by using a paycheck calculator to run payroll more frequently, a business can attract and retain more employees.
This is especially helpful for employees who are paid per hour and work varying numbers of hours per week. Calculating new pay and tax figures by hand every week can be quite the time sink, no matter how experienced an HR professional may be. A paycheck calculator ensures that these weekly runs are done swiftly and accurately every time.
4. Simulate Future Paychecks
Finally, a big boon of paycheck calculators is that they can be used to determine “what ifs” for the company and employees alike.
On the company’s side, an HR professional can adjust variables in the calculator to determine how decisions such as a new insurance policy, pay raise, relocation, or fringe benefit would affect the employee’s tax payment and bottom line. This keeps HR in touch with the reality of each employee’s income and how company policies might affect employees.
In the same vein, employees can also use the paycheck calculator to plan their own financial decisions. They can use the calculator to determine how their taxes and net paycheck might change should they decide to get married, have children, move to a new location, or accept a benefits policy from their employer.
How is a Paycheck Calculator Different From Payroll Software?
If your business has a few more employees, you might use payroll software instead to run payroll. In that case, then there’s no need for a paycheck calculator, right?
However, a paycheck calculator differs from payroll software on two accounts: cost and functionality.
First of all, a paycheck calculator is generally free to use. There are no strings attached, and several different companies online offer their own versions, so you have your choice of options.
On the other hand, payroll software generally costs a monthly fee, plus a variable fee per number of paychecks it calculates. For a small business, this could be a costly recurring expense.
Then, we have functionality. While payroll software and paycheck calculators both deal with employee compensation, the scope and function of their tasks are a bit different.
Both payroll software and paycheck calculators take each employee’s gross paycheck and determine how much their taxes and net paycheck are. From there, payroll software pushes out those calculated paychecks to employees, running payroll automatically.
However, as we mentioned earlier, paycheck calculators are unique in that they can help HR and employees calculate hypotheticals, forecasting how an employee’s paycheck would change after certain life and benefits decisions. In other words, a paycheck calculator is a more useful tool for data-based decision-making for HR.
For small business HR departments looking to improve the accuracy and frequency of their payroll runs without shelling out for payroll software, a paycheck calculator is an invaluable financial tool. Not only can a paycheck calculator determine an employee’s current net pay and taxes, but it can also help businesses plan for future paychecks and facilitate open communication with employees.
If you’re an HR professional in charge of payroll for your business, a paycheck calculator could be exactly what you need to improve your payroll runs and make the best use of your time.
HR Future Staff Writer.