The Employer’s Guide to Payroll Calculation
Processing payroll manually can be stressful. Whether you are managing a small retail team or a crew of contractors, accuracy is critical. A miscalculation in total hours doesn't just result in an unhappy employee; it can lead to severe wage-and-hour compliance issues with the Department of Labor.
Gross Pay vs. Net Pay
Our Payroll Hours Calculator is designed to calculate Gross Pay. It is important to understand the difference before you write a physical check to your employee:
- Gross Pay: The total amount of money an employee earns based on their hourly rate and hours worked. (e.g., 40 hours × $20/hr = $800 Gross Pay).
- Net Pay: Often called "take-home pay," this is the amount left over after you deduct Federal Income Tax, State Tax, Social Security (FICA), Medicare, and any benefits premiums.
Handling Employee Breaks Legally
One of the most common mistakes employers make is miscalculating break times. Under the Fair Labor Standards Act (FLSA), you must follow these rules:
- Rest Breaks (Paid): Short breaks lasting 5 to 20 minutes must be counted as paid work time. Do not deduct these from the employee's timesheet.
- Meal Breaks (Unpaid): Bona fide meal periods (typically 30 minutes or more) are not considered work time. The employee must be completely relieved of all duties. You can use the "Break" column in our calculator to automatically subtract these minutes.
Record-Keeping Requirements
Did you know that federal law requires employers to keep accurate payroll records for up to three years? You must maintain documentation of the hours worked each day and the total hours worked each workweek. We highly recommend using the Print Pay Stub button on our calculator to save a PDF or physical copy of each week's calculation for your tax files.
Frequently Asked Questions
How do I handle "Time and a Half" overtime?
If your employee worked over 40 hours in a single workweek, the FLSA requires you to pay the excess hours at 1.5 times their regular hourly rate. Our gross pay estimator calculates straight time. To calculate exact overtime wages, please use our dedicated Overtime Calculator.
What happens if an employee forgets to clock out?
By law, you must pay employees for all hours they actually worked. If an employee forgets to punch out, you should communicate with them to determine the exact time they left and manually adjust the timesheet before calculating their gross wages.
Can I round employee time punches?
Yes, the federal government allows employers to round employee time to the nearest 15 minutes (quarter-hour), as long as the rounding is neutral and doesn't exclusively benefit the employer. Read our 7-Minute Rounding Guide for more details.