As your business grows, you’ll undoubtedly be hiring more and more employees, and with that comes the responsibility of doing payroll. This can be both time-consuming and stressful. But it’s crucial that you get it right. Your employees won’t be happy if you don’t pay them properly, and mistakes in handling of payroll and the related taxes can leave you subject to penalties and fines.
Here are a few things you need to know about before doing payroll for your staff.
1. When do we get paid?
Though they may not ask it right away, it’s surely one of the first questions on any employee’s mind. What you need to decide first is what you’re going to use as a pay period, typically weekly, bi-weekly or semi-monthly. You’ll also need to choose when payday will occur, usually a certain number of days after the pay period ends.
2. Who’s exempt?
With the exception of those specifically excluded by the Fair Labor Standards Act(FLSA), you’re required to keep track of the time worked by every employee, and pay them for overtime if they work more than 40 hours in a week. Generally speaking, salaried employees are exempt from the overtime requirement; hourly employees are not. There are some exceptions, however, based on factors including the type of work and their rate of pay. The rules also vary from state to state, so be sure to check your state’s requirements.
3. Who’s an employee, really?
It’s important to make a distinction as to how to classify people who do work for your company. As a general rule, if someone works exclusively for your company, they should probably be classified as an employee. Misclassification of employees is a growing issue, and one that the IRS takes note of. Many people want to maintain independent contractor status for apparent tax advantages, but this may leave them without benefits including overtime and unemployment insurance to which they should be entitled. For the questions that will inevitably arise, check the IRS Employer’s Tax Guide.
4. The inevitable: taxes.
Taxes are, as we all know, one of the things that can’t be avoided, and not surprisingly, payroll is no exception. Both you as employer and your employees are required to pay taxes on wages to the federal, state, and in some cases, local governments. It’s the employer, however, who is responsible for actually making those payments to the appropriate agencies. So in each payroll run, you’ll need to calculate and withhold income tax, Social Security, Medicare, and Federal Unemployment Tax (FUTA), as well as any state and local requirements, from your employees’ wages. You’ll also need to make the employer’s contributions to all of the above, except for income tax.
5. Don’t touch those funds!
You’ll be responsible for making some substantial payroll tax payments, and there may be some lag between your paydays and the time that the taxes are actually due, which is usually quarterly or monthly. But you must resist the temptation to use those funds for any other operating expenses, which is expressly illegal. The government does not consider that money to belong to the business, so if you’re managing your own payroll, be sure to set those funds aside until you’re ready to remit the tax payments.
If this seems a bit overwhelming, considering the possibility of outsourcing these tasks to an outsourced payroll provider. They’ll not only manage the entire process and take that burden off your plate, but as specialists, they’ll make sure that you’re always on time and in compliance.