As a small business owner, nothing can be more intimidating than writing a check for your employee and making sure those payroll taxes are paid correctly and on time. If you are feeling overwhelmed, Tentho has compiled a list of basic information every employer needs to know in order to be successful at running their first payroll. Note that this list in no way covers all the rules employers are exposed to, so please be sure to consult with a professional if you have a specific question.
When do I get paid?
One of the first things an employee will ask you is about the pay schedule. They want to know, how much they will get paid, how frequently they will get paid, and on what day of the week will they see the money hit their account. Safe to say that selecting your payment schedule is one of the first things you will do and will answer most of these questions. There are two more commonly selected pay schedules and there are benefits with each.
- Semimonthly – this payroll schedule means that employees will be paid on the 15th and last day of the month for a total of 24 payrolls for the year. This makes tax filings simpler, and allows your employees to be paid for their work on more current timeline (no lag in the time from work performed to work paid).
- Bi-weekly – this payroll schedule is probably the most common, and pays employees every two weeks for a total of 26 payrolls in the year. Employees typically like this schedule because they receive an “extra” payroll in two out of the twelve months in the year, but in reality, they are being paid on a one-week lag from the date the work was performed. This payroll schedule will also require you to book an accrual at the end of your fiscal year if you are in accrual basis accounting.
Do I have to pay this tax?
When it comes to payroll taxes there are two responsible parties, the employee and the employer. Neither of these two parties thinks it’s a party to have to pay Uncle Sam what he is due, but it is a necessary part of the payroll process. These taxes are usually owed to the federal government and the state, both of which “want my money”. Generally, employers are responsible for collecting federal income tax, Social Security, and Medicare tax from employees based on what they mark on their W-4. Employers must also pay matching amounts of Social Security and Medicare tax as well as Federal Unemployment Tax (FUTA). Depending on your state you may be required to collect other state taxes so be sure to look into your individual state requirements.
When do I have to pay these taxes?
Generally, federal and state income taxes are due on a monthly basis. Other taxes like FUTA are paid quarterly. Paying these taxes really depends on the size of your business, and most employers need to pay taxes on a monthly basis. Full-service payroll providers withhold these taxes and pay them to the appropriate government agency when they are due. The federal form 941 must be filed each quarter and the federal form 940 (FUTA) must be filed each year. You are also required to file Form W-3 and W-2 to the Social Security Administration (SSA) each year.
To be exempt or non-exempt?
As an employer, you must keep track of hours worked for hourly, non-exempt employees. Most workers are classified as either exempt or non-exempt depending on their salary and the type of work they do. Be careful! Classifying an employee as an independent contractor when they do not meet certain criteria can expose you and your business to significant liability.
We hope these tips help you to make better, more informed decisions when it comes to managing your payroll for your small business. If you still have questions or are ready to get help from an outsourced accounting and bookkeeping firm, sign up today or schedule your free consultation.