As the owner of a small enterprise, you’ll probably know just how strictly regulated the legal system is with regards to many aspects of running a business, and this can prove especially complicated when dealing with the employee payroll accounts. There are myriad state and federal regulations with regards to pay, and ensuring that you comply with each of them can be a worry. Below are a few points that should set you going on the right path:
Calculating payroll
It certainly isn’t most small business owners’ idea of fun, but calculating taxes simply cannot be ignored, and as an employer, you don’t want to end up incurring hefty penalties for underpaying taxes or making late payments.
- Federal and State Income Tax: Every new employee must complete a Form W-4; the information provided, like marital status and allowances, will determine the amount of federal income taxes that need to be withheld from their salaries. Further information regarding this can be found at the Department of Revenue relevant to your state.
- Social Security and Medicare: Employer and employee must contribute 6.2% of a 12.4% total; if earnings are up to $118,500 they are subject to social security withholding, amounts over this figure are exempt. Employer and employee must contribute 1.4% towards Medicare withholding and earnings are subject to taxation. Wage payments made to employees of more than $200,000 are subject to extra Medicare tax withholding of 0.9%.
- Federal and State Unemployment Tax: Also known as FUTA, the Federal Unemployment Tax Act mandates 6% withholding, but there may be a credit of up to 5.4% available to eligible employers. The first $7,000 in employee’s earnings are applicable to FUTA withholding.
Managing payroll
Payroll records must be kept for at least 3 years from the date of the last entry that was made (some states require records to be kept for longer than this, so it’s wise to check). Basic employment and earnings records are included in this, along with wage rate tables, shipping and billing records and additions or deductions from wages paid.
Even armed with the above information, calculating and managing payroll can still seem like an unending and impossible task, especially when laws change and can vary from state to state. With this in mind, many small business owners prefer to hire the services of a professional to fulfil their company’s payroll duties.
Hiring a Payroll Service Provider
Outsourcing payroll can really pay dividend for small business owners, as not only are they able to focus their time and energies on areas of their business that may otherwise have been neglected, but they can be confident that their payroll will be executed accurately and will comply with state legislation. Of course professional payroll providers don’t come for free, but you just might find that they can save you money by ensuring that you never incur any penalties or break any laws, and peace of mind for many, is priceless.