When you run payroll, you enter hours for hourly employees, and Freedom calculates gross pay, taxes, and deductions.
If you're an employee: if your pay looks wrong, contact your company's payroll admin. Parts of this article marked "For admins" are steps only admins can take.
What is pay calculation?
Pay calculation is the process of determining how much an employee earns for a given pay period. It includes:
Base pay (salary or hourly wages)
Overtime and bonuses
Commissions (if applicable)
Deductions (taxes, benefits, garnishments)
Reimbursements (if applicable)
Hourly vs. salaried pay
The method for calculating pay depends on employment classification:
Employee type | Calculation | Example |
Hourly | Hours worked × hourly rate (+ overtime you add) | 40 hrs × $25/hr = $1,000 |
Salaried | Annual salary ÷ pay periods = consistent pay per cycle | $60,000 ÷ 26 periods = $2,307.69 |
Hourly employees: Paid based on actual hours worked. Overtime (typically 1.5× the regular rate) applies for hours over 40 in a week, depending on federal and state law.
Salaried employees: Receive the same amount each pay period regardless of hours worked. However, they may still need to track hours for benefits eligibility, workload management, or state compliance.
Overtime, bonuses, and commissions
Overtime, bonuses, and commissions all count as gross pay, so taxes are calculated on them.
Component | What it is | How it's handled |
Overtime | Paid at a higher rate (usually 1.5×) for hours exceeding 40 per week | For admins: add an "Overtime" earning on the Employee earnings step, enter its hours, and enter the amount to pay. Freedom doesn't apply the overtime rate for you, so work the amount out first (usually hours × 1.5 × the hourly rate, or the rate your state requires). |
Bonuses | One-time or recurring payments for performance, referrals, or milestones | For admins: click "Pay bonuses" on the Pay page, or add a "Bonus" earning to a regular payroll. See Pay a bonus, commission, or reimbursement. Bonuses are automatically taxed and included in the pay stub. |
Commissions | Payments tied to sales or performance metrics | For admins: click "Pay commission" on the Pay page, or add a "Commission" earning to a regular payroll |
All variable pay is considered taxable income and subject to federal and state withholding, Social Security, and Medicare taxes.
Deductions and withholdings
Deductions reduce gross pay to calculate net pay (take-home). There are three main categories:
Deduction type | Examples | Note |
Tax withholdings | Federal income tax, state income tax, Social Security, Medicare | Calculated automatically based on W-4 and employee location |
Benefit deductions | Health insurance, 401(k), FSA/HSA, life insurance | Pre-tax (reduces taxable income) or post-tax (taken from net pay) |
Other deductions | Child support garnishments, court-ordered wage withholdings | Processed according to court orders or legal requirements |
Pre-tax and post-tax deductions are kept separate because they're taxed differently. Every deduction shows on the pay stub.
FAQ
How are state and federal taxes calculated?
Current tax tables are automatically applied based on the employee's W-4 withholding elections and their work location (state/local). Tax rates update automatically when regulations change.
What if I need to make a correction after payroll is approved?
If you're an employee, contact your company's payroll admin. For admins: until the reopen time shown on an approved payroll passes, you can reopen it, make your changes, and approve it again (see Approve a payroll). After that, open Correct a payroll and choose what went wrong. The page tells you whether you can fix it yourself or our team will handle it. For example, you can start an off-cycle payroll to pay someone the difference if they were underpaid, while voiding a paid payroll or changing a workplace, benefit, or deduction is handled by our team.
Are bonuses and commissions taxed differently?
For federal income tax, they can be. The IRS treats bonuses and commissions as supplemental wages, which can be withheld at a flat 22% instead of the rate from the employee's W-4. When an admin pays one with "Pay bonuses" or "Pay commission", Freedom withholds the flat 22% for anyone who got a regular paycheck this year or last. State and local taxes use their own supplemental rates where they have one. Social Security and Medicare apply the same way as they do to regular wages.
What information do employees see on their pay stub?
Employees open "Paystubs" in the sidebar of their Freedom account to see their gross pay, all deductions (broken down by type), net pay, and year-to-date totals. Admins can also find an employee's pay stubs on the "Paystubs" tab of their profile in People.
Can I audit past pay calculations?
For admins: yes. Freedom keeps a record of every processed payroll. Go to Pay > History, click "View payroll" on a row to see its figures, or click "Download CSV" to export it as a spreadsheet (see Download a payroll as a spreadsheet (CSV)).