All business owners need to keep track of their year-to-date payroll because this data is a key factor in business trends analysis and in comparing a company’s performance against competitors.
This article will help business owners including sole proprietors, learn more about year-to-date, YTD stubs, and how to calculate their YTD expenses. We also want to help employees learn more about the YTD values they see on their pay stubs.
What is Year To Date (YTD) In Payroll?
The Year-to-date is the total amount of money a company shelled out for payroll since the start of the calendar or fiscal year up to the current payroll date. YTD computations are based on the employees’ gross wages.
It can also include salaries released to freelance contractors. For employees, YTD is their gross income per pay period. For business owners, YTD covers all the payroll expenses during one calendar or fiscal year.
Why should business owners pay importance to YTD in payroll? The year-to-date information enables business owners to make a comparative cost analysis of their payroll expenses against their annual budget.
Your YTD will help you determine how much of your annual budget went to payroll expenses. If your payroll goes beyond your forecasted budget, you will be able to come up with a plan on how to cut down your expenses.
YTD also helps in assessing your business’ quarterly and yearly tax liabilities. If your tax liabilities are on the high side, you need to make adjustments on your project payroll expenses such as putting on hold a costly project.
The data can also help you decide whether to hire more or temporarily freeze hiring. Payroll YTDs are also required for computing your business tax obligations and providing accurate year-end tax documents to all your employees.
YTD values are used in the annual filing of W2, IRS form 940, and other state reconciliation forms.
What Is The Importance Of Year-To-Date (YTD) On Pay Stubs?
Employees are provided with their year-to-date (YTD) earnings on their Pay Stubs. Employees should pay attention to the following year-to-date values on their Pay Stubs:
- YTD gross earnings – total wages earned for the year
- YTD deductions and benefits- the total amount of deductions for 401(k) and other employee savings plans such as retirement and health insurance
- YTD federal taxes – the total amount of withheld federal taxes for the year
- YTD state taxes – the total amount of withheld state taxes
- YTD reimbursements
- YTD net pay – the total amount of wages left after deductions
- YTD worked hours – the total amount of hours worked including overtime and holiday
Employees should take note of their year-to-date information. It will help them determine if they still need to pay taxes to the Internal Revenue Service (IRS) before the filing period.
They can compare the YTD data to the annual W-2 they will receive from the employer and check if the total wages indicated in box 1 W-2 match the YTD earnings indicated on the last pay stub for the fiscal year.
How To Calculate Year-To-Date?
To determine your year-to-date, add all the gross earnings reflected on your employees’ Pay Stubs.
For example, You are running a small business with 5 employees: Adams, Taylor, Smith, Monroe, and Craig. Add the gross earnings of each employee: Adams $25,000, Taylor $22,000, Smith $23,000, Monroe $24,000, and Craig $21,000. Your business YTD is $115,000.
You should also include in your computations the payroll expenses incurred from hiring freelance contractors during the fiscal year. For example, you hired two freelancers at $5,000 each. Your total YTD will be $125,000.
If you do not provide employees with Pay Stubs, multiply the gross earnings received by each employee per pay period by the number of paychecks they received. For example, you have two employees, Sarah and James who received wages for 10 pay periods.
Both of them earned gross wages amounting to $1,500 per pay period. Your year-to-date total is $30,000.
We hope that our article helped you gain insight into the importance of year-to-date payroll. Whether you have a small or midsize business, keeping track of your YTDs will benefit you and your employees.
Manual computations of YTDs can be manageable if you have a small workforce. However, as your company grows, it is best to automate your payroll system to ensure accuracy.
Also, payroll management is very time-consuming if done the traditional way. Avoid getting weighed down by payroll tasks by switching to an online paystub payroll system.