A comprehensive guide to employer payroll taxes

Managing employer payroll taxes can be one of the most complex and high-stakes tasks on any HR professional’s list.

Payroll taxes are rarely straightforward, and the consequences of inaccuracies can be costly. Missed tax obligations, incorrect form submissions, or poorly maintained records can all result in compliance risks and frustrated employees. 

Indeed, these errors are more than just administrative — they can delay payroll cycles, harm company reputation, and disrupt financial planning. With this in mind, keeping your payroll tax processes accurate and consistent is crucial.

To help you stay on track, we’ve outlined essential details and practical tips for managing employer payroll taxes. Let’s dive in.
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What are employer payroll taxes?

Employer payroll taxes are tax obligations that businesses must fulfill to support government programs and employee benefits. While some payroll taxes are shared between companies and workers, employer-specific contributions are paid entirely by the company. 

Payroll tax regulations vary widely depending on location and industry. However, the essential components of payroll tax management include:

• Gathering employee information to determine tax liabilities
• Calculating gross earnings and applicable payroll taxes
• Withholding taxes from employee paychecks
• Paying relevant employer tax contributions
• Filing tax returns and remitting taxes to authorities
• Issuing income tax forms to employees

Certain organizations, such as non-profits, may qualify for tax exemptions, while others might benefit from temporary relief measures during economic crises.

Possible exceptions aside, it’s safe to assume that your organization should calculate, collect, withhold, and remit employer payroll taxes. Be sure that you understand your obligations so that your organization stays compliant. 

‍💡 Did you know?

In most countries, employer payroll taxes apply to bonuses, too. Often, companies are required to withhold and contribute taxes based on this kind of compensation. However, specific tax structures vary depending on where you’re based and how bonuses are paid and classified within your organization. 

We recommend you consult with a local tax expert to avoid any issues.

What payroll taxes do employers pay?

Every country has its own rules for employer payroll taxes, and it’s each employer’s responsibility to keep up with the latest regulations — and that includes HR teams that prepare payroll independently. 

Some of the most common employer payroll taxes include:

• Social security — Many countries, including the United States, mandate employer contributions to social security programs. In the United Kingdom, these contributions fall under National Insurance, which collects funding for the National Health Service (NHS), state pensions, and unemployment benefits. 

• Health insurance —  In some regions, employers contribute to national health insurance or fund employee health plans. For instance, Germany, France, and the Netherlands require employers to pay a healthcare contribution — usually a set percentage of taxable wages. US companies may also have to withhold additional Medicare tax on behalf of taxpayers. 

• Unemployment tax — Some countries collect mandatory unemployment contributions as part of or on top of social security payments. In the US, this includes the Federal Unemployment Tax Act (FUTA) and state-level programs designed to support involuntarily terminated employees. Other regions may have similar unemployment insurance contributions.

These examples highlight typical employer payroll taxes, but you may encounter different obligations based on your company’s and your employees’ locations. 

Some US states require employers to contribute to disability insurance, while the UK enforces an Apprenticeship Levy on large companies. In some EU countries, businesses must pay accident and work insurance contributions.
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Example: How to calculate payroll tax withholdings in the US

So, now you understand what employer payroll taxes are and what contributions your company may be required to pay. Next, you need to know how to calculate employee payroll tax withholdings.

Here’s a breakdown of how this process usually works for US-based companies.
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1. Understand your payroll tax obligations

All US employers must contribute to Social Security under the Federal Insurance Contributions Act (FICA). Currently, employers pay 6.2% towards Social Security and 1.45% for Medicare, and employee contributions should match these amounts — adding up to a total of 15.3%.

The Internal Revenue Service (IRS) also subjects high earners (above US$200,000 for individuals or US$250,000 for couples filing jointly) to an additional 0.9% Medicare tax, which employers must withhold but don’t have to match.

Federal Unemployment Tax Act (FUTA) taxes come from your company’s pocket. These amount to 6% of an employee’s salary up to US$7,000. However, in some cases, like when a business pays their state unemployment taxes on time, they may receive a federal credit of up to 5.4%, reducing their effective FUTA rate to 0.6%. In certain states with federal unemployment loan debts, also known as credit reduction states, the available credit may be lower, resulting in a higher effective FUTA rate.

In addition to federal payroll taxes, employers may need to withhold and pay relevant state payroll taxes. This may include state unemployment and income tax withholdings, but rates will vary; you can consult the Federation of Tax Administrators to get specific information on your state’s requirements. 

💡 Top tip: Employers need to file annual Form W-2s for all employees. These include details on marital status, child benefits, and additional tax withholding requests that you’ll need to calculate payroll taxes.

2. Calculate gross taxable income

For payroll tax purposes, gross taxable income is the employee's total earnings before any deductions. This amount includes wages, salaries, and other compensation but excludes pre-tax benefits like retirement contributions and employer-provided insurance.

For example, let’s say you work for a New York company and calculate payroll taxes for an employee named Logan. 

Their annual salary is US$42,000, which is US$3,500 per month. Logan is single and doesn’t have dependents. They’ve requested an additional withholding of US$250 per pay period on their Form W-2. Logan’s monthly gross income remains US$3,500, but the additional withholding of US$250 will affect their net pay.
 

3. Work out payroll tax contributions and withholdings

Now that you know Logan’s gross taxable income, your HR team can determine how much employer payroll tax your company should set aside from its own funds and the worker’s paycheck.

These will include all tax contributions your company is responsible for withholding and remitting to the relevant authorities. In this case, we’ll need to account for state-based requirements in addition to standard federal tax obligations. 

New York employers are subject to various state-based taxes, including:

• Unemployment insurance
• Re-employment tax
• State disability insurance

Local legislation also states that businesses have to withhold additional contributions on behalf of employees:

• Paid family leave tax
• Personal income tax

You’ll also need to account for any other employee payroll deductions, such as life insurance or retirement plan contributions, and include them in Logan’s withholdings.
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4. Determine net (take-home) pay

To calculate Logan’s take-home pay, you must subtract the total withholdings from the employee’s gross pay — not gross taxable income. 

Let’s assume Logan’s deductions amount to 23% of their US$3,500 paycheck, or US$805. Then, Logan’s net pay would be US$2,695. All of this information should be included on Logan’s payslip to help them keep track of earnings, taxes, and benefits. 

As you can see, these tax calculations can quickly become overwhelming — and that’s without additional complications like tax credits or off-cycle payroll requests. Fortunately, there are tools that can help streamline these crucial payroll processes.

Using a human resources information system (HRIS) with integrated payroll features can help you automate some of the steps we listed above. With handy automations, including streamlined reporting and analytics, these efficient tools can help your HR team minimize the stress of managing employer payroll taxes manually.

Don’t have an HRIS in place? Read our guide to choosing HRIS software that hits everything on your HRIS requirements checklist.

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How employer payroll taxes differ between countries

As we’ve touched on, employer payroll taxes are different around the world — resulting in a wide range of payroll tax rates and regulations.

To help you understand some of these discrepancies, we’ve outlined a summary of the key requirements for employers and employees in the US, Canada, and the UK.

*The information above is based on our research in October 2024. This should not be construed as financial or legal advice, and we recommend that you consult a professional if you need help with employer payroll taxes.
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Getting to grips with employer payroll taxes

Whether your company has five employees or five hundred, calculating, tracking, and remitting employer payroll taxes is no easy feat.

From submitting the correct forms to understanding payroll terms and ensuring you meet tax due dates, managing your payroll responsibilities is a crucial — but cumbersome — task. 

With Leapsome’s new HRIS, there’s no need to grapple with confusing, burdensome payroll systems. It’s designed for small and growing businesses and provides the integrations and functionalities missing from your HR workflows.

No more repetitive manual tasks. No more last-minute concerns. Just a centralized, seamless payroll experience that works for everyone.
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Disclaimer: This article is for informational purposes only and doesn’t offer legal, tax, or financial advice. While we’ve done our best to ensure accuracy and completeness, we can’t guarantee everything is up-to-date or error-free. For tailored advice, we recommend consulting a qualified lawyer or tax advisor.