Payroll budgeting is a meticulous task and it is inevitable for every company.

If you have no prior experience with accounting or record keeping, it might seem very confusing!

Various costs go into a payroll budget and properly organizing them is crucial to ensure accuracy while drafting the budget. But it does not have to be difficult.

A viable payroll budget gives you a clear picture of the finances so that you can make the right decisions for your company’s growth.

Here’s a quick guide to making one for your business too.

Get the Basics Right

The first step in determining your payroll budget is to take a count of all the employees in your company.

Make sure you include all your employees, both part-time and full-time. Note down each employee’s base pay. Base pay is the fixed payment excluding any incentives.

Before you move to the next step, count the employees leaving or joining your company soon. If you have new joinees in the upcoming week, you should include them in the budget.

If your employees have different payment schedules — if some are bi-weekly and others are monthly — you should factor that into your budget.

Beyond the Base Pay

Based on their performance, top employees get rewarded through incentives or benefits. To calculate each employee’s total pay, add their base pay with the incentives, bonuses, or perks they are entitled to.

Apart from this, overtime pay should also be included in the budget. If your company is in a busy season, do account for the estimated overtime hours.

Mandatory benefits like workers’ compensation, sick leave, and PTO are prescribed by the law. So, your company’s payroll budget must cover them. If you have workers’ compensation insurance, you should count it too.

Make a call about the voluntary benefits depending on your company’s financial situation. Generally bigger companies offer more voluntary benefits since they have higher budgets.

Figure Out the Taxes

Taxes are complicated but you cannot overlook them when making your company’s payroll budget. It is calculated as a percentage of the employee’s salary. Tax authorities use this money to fund programs like Medicare and Social Security.

Though certain taxes remain uniform throughout the country, lower-level taxes can vary depending on the location and size of your business.

It may be nearly impossible to know all the taxes that should go into your budget because the rates tend to fluctuate quite often. Hiring a payroll company or service will make tax calculations easier as they will keep you updated with the current tax rates.

Apart from staying informed, you will also get help in report generation, saving you a ton of time.

Before You Proceed

Once you have laid down your payroll budget, you should check if it is feasible and practical.

If you find the budget to be too high, look for areas where you can make reasonable cuts in expenses. This can include administrative costs or unnecessary overtime hours.

You may also compare your current budget with last year’s to see where your costs have gone higher or lower. This will give you a better perspective, helping you balance the budget.

You may review your employees’ pay history and analyze department-wise allocations to see if your company’s budget is well-balanced.

Bonus tip, using payroll software can speed up the tasks and prevent errors.

Conclusion

While payroll budget-making can seem overwhelming, it plays a key role in preserving your company’s financial health and reputation. Breaking down the process into small steps and seeking professional advice can help you draft the right budget that fits all your needs.