How do companies fund payroll?

Payroll given to a worker

There are several factors that you must take into account before hiring personnel. One of them is the payroll. Simply put, payroll is the financial record of your employees’ salaries, bonuses and deductions.

By definition, the salary is the economic amount that the employee receives in return for services rendered which is determined by a unit of time. In other words, when a person works on a daily or hourly basis, he/she receives a salary calculated by the time he/she rendered his/her services.

On the other hand, when an employee receives a fixed remuneration on a regular basis, it is called a salary. Both the regularity of the payment and the value of the rent are defined in a mutually agreed contract.

These are concepts for which part of the employee’s pay will be withheld. It is important that the deductions are in full compliance with the law and do not contain abuses by the employer. This category includes deductions such as tax withholding and social security withholding.

Payroll of a company

These credits are available to eligible employers beginning April 1, 2020, for qualified leave providing between April 1, 2020, and December 31, 2020.

Eligible employers are tax-exempt businesses and organizations with fewer than 500 full-time and part-time employees within the United States or any territory or possession of the United States and that must meet the employer’s paid leave requirements. The questions and answers and regulations issued by the U.S. Department of Labor have more information about the 500-employee threshold and paid leave requirements.

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Employees may receive up to 80 hours of paid sick leave at two-thirds (⅔) of their regular salary or, if greater, the applicable minimum wage, up to $200 per day and $2,000 total. Employees may receive this benefit if they need to care for:

Payroll in accounting

Every month your company has to apply a series of obligatory deductions in your payroll, such as the payment of the personal income tax (IRPF) or the payment to the Social Security. If you have doubts about how these payments to the Social Security are calculated in your payroll, in this article we are going to explain it in detail.

Social Security must be paid for the entire time you are working for the company. Thus, the obligation to contribute arises from the beginning of the employment relationship and ends with the termination of employment.  Social Security contributions finance the system and provide access to entitlements such as unemployment, sick leave or maternity leave, among others.

Unlike personal income tax, which is calculated on the basis of the employee’s personal circumstances, social security contributions are always paid at the same rate, one part being paid by the employer and the other by the employee. The company pays the social security contributions, and makes the withholdings in the employee’s paycheck to also pay the part that corresponds to him/her. If you are self-employed, you pay a monthly contribution directly to the Social Security.

Elements of the payroll in accounting

Now, in addition to the employee’s contribution, the company’s contribution must also be included, i.e. 28.3% for common contingencies; 5.5% in the case of permanent contracts for unemployment (6.7% in the case of temporary workers, regardless of whether they are full-time or part-time); the contribution for the Wage Guarantee Fund (0.2%); and Vocational Training (0.6%).

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To this percentage is added another 5.50% of the employee’s regulatory base, which is paid by the employer as unemployment contributions. The proceeds of this contribution are used to pay unemployment benefits to eligible unemployed persons. If the contract is temporary, the amount paid by the company for unemployment is slightly more, i.e. 6.70%.

In total, the employer’s contribution, which is the name given to the sum of all these contributions, amounts to 30% of the regulatory base for permanent workers and 31% for temporary workers.