The Growth, Hiring, and Payroll Series will help give your company a much needed boost in order to further the efficiency of the day to day, week to week, month to month, and year to year process. Each article will discuss common tasks that companies face while maintaining compliance with federal and local law. Give your company a leg up over the competition and be sure to check out each article for valuable insights that will help get your company to the next level.
Think payroll is just cutting checks?
Think again.
Well-meaning business owners make honest mistakes leading to hundreds of thousands of dollars of penalties each and every year. The federal government does not care whether you thought you were doing it right, and penalties are rarely waived. Not only that, but quality employees will not stick around when mistakes are being made that affect their paychecks or tax returns.
What are Payroll Taxes?
Payroll taxes come in two forms: employee taxes that are withheld from the gross amounts on paychecks, and company-paid employer taxes. Payroll taxes are the funding source for federal programs such as Social Security, Medicare, and other social initiatives.
In addition to employer and employee taxes there are insurance expenses for each employee, which cover unemployment and workers compensation.
Setting Up Payroll Taxes
Setting up this system can be difficult and complicated. The Small Business Administration has provided some detailed guidelines to help small businesses understand how to get started. There are three fundamental steps that must be considered when first setting up Payroll: determining your tax year (calendar, fiscal, or short), your state tax obligations, and your federal tax obligations.
Many companies use the calendar year to make their accounting easier, but for some companies it can be beneficial to have the fiscal year start and end on an alternative date. State taxes can include county and city taxes. Each state has a completely different set of rules and regulations that must be followed to maintain compliance. The IRS offers a spreadsheet tool for companies to estimate what might be owed.
Unemployment and Workers’ Compensation Insurance
Unemployment insurance and Workers’ Compensation are also part of what must be considered during the payroll process. The Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Act (SUTA) were implemented to cover the costs of unemployment insurance. Most states require employers to contribute to the costs of that state’s unemployment program. In the event of a workplace injury, Workers’ Compensation may cover lost wages which resulted from the injury, the costs associated with medical treatments, vocational rehabilitation programs to get workers back in their field, and many other programs that cover specific needs.
Potential Penalties
Like all tax evasion, not paying Payroll Taxes can be very costly to you and your business. According to the IRS Tax Crimes handbook anyone that attempts to evade taxes of any kind can be found guilty of a felony and may be fined up to $100,000 for individuals or $500,000 for corporations. The individual members of the corporation may also face 5 years in prison. Don’t let this happen to you or your business.
Final Note
Now that you know how much goes into payroll and some of the penalties involved, are you ready to take on this responsibility? The process could be difficult and doing it wrong could cause you to suffer harsh consequences. A better option is to work with a payroll management company that makes sure that it is all done correctly and keeps you out of trouble.
If you’re hiring employees, plan to be in it for the long haul because it often takes a few tries to get the right fit. The Growth, Hiring and Payroll series includes tools to empower you with Hiring Strategies, Contractors and Employee guidelines, Hiring Processes, Payroll information, and Benefits.
Hiring Strategy will give you information which saves time and money
Contractor Vs. Employees helps businesses to clearly define roles and maintain compliance
Hiring Process will give you good ideas about a process that works for your business
Payroll 101 will familiarize you with the process that is needed for compliance
Benefits 101 will allow you to be the most competitive company for the most qualified employees
Be sure to check out all of them, your business and your personal well-being will thank you for it!
Payroll is hard, Gusto makes it easy
Here at Sonder Accounting, we partner with Gusto to make payroll a breeze for our clients. Check it out and feel free to reach out if we can support you in your payroll journey!
