What is a Payroll Calculator?

Whether you’re running a two-person operation or a growing food truck fleet, you know payroll is more complicated than giving each employee their exact amount earned each pay period. Instead, as an employer, you have to withhold taxes from each employee’s paycheck. Withholdings might also include premiums for your business’s vision, dental, and medical insurance plans; wage garnishments; or voluntary donations.

But how can you figure out how much should be deducted from each paycheck? A payroll (or paycheck) calculator is a tool that calculates tax withholdings and other deductions from an employee’s gross pay— which makes it easier to give your employees the right net pay at the end of the pay period. Thanks to their tax accuracy, paycheck calculators can also relieve some of the stress we all associate with tax season.

Payroll calculators for employers are tailored to all sorts of employee situations. There are hourly and salary payroll calculators, weekly and bi-weekly paycheck calculators, or even calculators that ensure you give your 1099 (or freelance) employees the right gross pay.

You can find a free payroll calculator online or use the calculator included with your small business’s accounting or payroll software.

Payroll calculator components

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So how do you know your payroll calculator passes muster? Both a payroll calculator included with your accounting software and a free online payroll calculator should include variations on the following components.

Employee and pay information

Enter each employee’s net pay and indicate how often they get paid—that’s usually weekly or bi-weekly.

Hours worked

Hourly payroll calculators should include a space for you to enter your employee’s exact time worked. Salary paycheck calculators should include a space for you to indicate how many hours a salaried employee works in a pay period. You can also find payroll calculators that include space for overtime and holiday pay. Plus, some calculators help you track year-to-date gross pay.

Federal tax information

Payroll calculators use the most up-to-date federal tax rate to tell you how much money you should set aside from your employee’s gross pay—all you have to do is input the right employee information:

  • The employee’s filing status (married, single, or married but filing at the higher single rate)
  • The number of federal allowances
  • Whether your employee is exempt from Social Security and Medicare taxes or the federal income tax

State tax information

Your payroll withholding calculator will have a drop-down menu where you can select your state. The calculator then automatically knows how much to withhold per your state’s tax laws. You can also insert additional state tax withholding or check a box if your employee is exempt from state taxes.

Custom deductions

Most payroll calculators include a space for an employer to enter workplace-specific deductions, including the following:

  • 401(k) contributions
  • Healthcare premiums
  • Donations to charitable establishments
  • Other retirement savings accounts

The takeaway

Paycheck calculators are a great way too quickly, easily, and affordably calculate taxable income and net pay, especially if you use a free payroll calculator. Even better, they help both the employer and employees of any small business feel confident that they’re receiving the right amount on their pay stubs—and that they won’t run into trouble when tax season rolls around.

Need more accounting help than a basic payroll deductions calculator? Check out our piece on the best accounting software of 2019 to find the right payroll and accounting service for your business.