Employers who are responsible for managing payrolls often look for online calculators to help with their payroll obligations. These tools, known as free employer payroll calculators, are designed to provide employers a means of estimating the amount of taxes withheld from employee paychecks.
What is an employer payroll calculator?
An employer payroll calculator estimates the taxes that will be withheld from employee paychecks, along with the employer’s share of the costs associated with the payroll. Most employers do not have to pay for these tools; they can use them for free to calculate how much of their employees’ paychecks are used to fund various federal, state, and local government agencies.
Some employers like the flexibility of being able to estimate what their tax burden will be when hiring a new employee or before the company makes any adjustments to its current employees’ wages. Other companies may simply prefer having the ability to print out a paycheck or a pay stub in order to avoid errors in manual calculations.
Why would an employer need a payroll calculator?
Employers who don’t use one of these free calculators must calculate everything themselves, which can be time-consuming, especially since there are so many different taxes and deductions involved in calculating each individual paycheck. For instance, if you were to use an online employer payroll calculator, you’d typically enter information about your wages, filing status, and even the state you’re located in via a dropdown menu. In return, the tool would provide a breakdown of the withholding amounts that it would expect to see, along with the net pay (or take-home pay) that would result.
These calculators cover all 50 states, including the federal and state income taxes, along with pre-tax benefit deductions, post-tax deductions, and wage garnishments. Employers can also reverse the calculation: Enter the amount of net pay you wish to achieve, select “Compute Gross,” and then find out how much of a gross salary your employee must earn to produce the target net paycheck.
However, employers should not consider the results provided by these calculators to be exact representations of the amount of tax owed or the actual payroll figures. There are limitations, some of which are outlined below.
What types of taxes does a free employer payroll calculator cover?
There are several taxes that affect both employers and employees. Here’s how these taxes break down:
Employee side:
Social Security tax (FICA)
Medicare tax (FICA)
Federal income tax withholding
State income tax withholding
Employer side:
Social Security tax (FICA)
Medicare tax (FICA)
Federal unemployment tax (FUTA)
State unemployment insurance (SUTA)
The difference between employer and employee payroll taxes
Employees are generally responsible for paying Social Security and Medicare taxes, referred to collectively as FICA. However, those amounts are typically withheld automatically from an employee’s paycheck and then matched by the employer.
In addition to matching those payments, employers are also responsible for paying additional taxes, such as Federal Unemployment Tax Act (FUTA) and State Unemployment Insurance (SUTA) taxes. As a result, the total tax burden borne by an employer exceeds what appears on an employee’s paycheck alone.
Inputs and outputs for a payroll calculator
Most employers who use a payroll calculator can supply certain inputs in order to receive accurate outputs. For example, you might need to specify:
Wages
Filing status
State where the business is based
From that, you can expect the following outputs:
Gross-to-net calculations
Take-home pay estimate
Itemized withholding amounts
All 50 states
Federal/state/local taxes
Pre-tax benefit deductions
Post-tax deductions
Wage garnishments
You can even reverse the calculation process: If you already know the desired net pay, you can instead specify what amount of gross pay you’ll require in order to generate the target net figure.
How does the employer ensure compliance?
Employers who use these free calculators should understand that while these tools can estimate some of the compliance burdens imposed upon them, they aren’t substitutes for legal, accounting, or financial advisors. An accountant can assist with properly classifying an employee versus a contractor, for example. Similarly, an attorney could advise an employer on whether it’s complying with federal, state, and local labor laws. A financial advisor can help an employer understand whether it’s meeting its obligations for withholding the correct amount of tax from an employee’s paycheck.
When an employer files IRS Form 941, or a similar form with the relevant state department of revenue, it has to include a number of elements: the type of entity, the amount of wages paid, the amount of taxes withheld, etc. Employers are responsible for accurately calculating and reporting all of this every pay period. They are also responsible for ensuring that they’ve paid the appropriate amounts of taxes to the IRS, their state departments, and local agencies. The IRS recommends keeping up with changes to tax rates, and making sure that the employer’s calculations are accurate.
Limitations of using a free employer payroll calculator
Although a free employer payroll calculator may appear helpful, the IRS cautions that they are merely intended to serve as general guidance and estimates. Employers shouldn’t rely on them to determine the precise amount of taxes, payroll, or other financial data, however. A payroll calculator service, for example, recommends referring employees to a professional advisor or accountant if the employer is uncertain. Another payroll calculator service cautions that it doesn’t offer tax, accounting, or legal advice.