Processing payroll is probably not your favorite part of running your business. But doing it right is absolutely crucial if you want to stay in compliance with current tax and labor laws. Luckily, knowing a few key facts about payroll can make life a lot easier for you. Here are a few basic tips that can help take the mystery out of payroll administration:
Understand the difference between hourly and salaried workers.
The first step to understanding how to pay your employees is understanding the two basic job classifications. Hourly workers are subject to overtime laws, meaning they must be paid time and a half for any hours they work beyond the normal 40-hour workweek. Salaried workers, however, are not owed overtime. Typically, salaried workers are white-collar employees with management responsibilities or specialized professional expertise.
Know the difference between contractors and employees.
A common error among business owners is confusing contractors and employees. It’s often tempting to classify workers as contractors, since it’s easier (you don’t need to worry about their payroll tax or benefits), but misclassifying workers can land you in trouble.
A basic rule of thumb is employees work in your core business, while contractors perform tasks outside your core business. So if you run a plumbing company, the guy who goes on house calls for you three days a week should be considered an employee, even if he’s not working for you full time. Your part-time webmaster, on the other hand, can be considered a contractor, since he/she works outside your main business.
Make sure your payroll budget includes payroll taxes as well as wages.
This is another important payroll tip that many business owners overlook. If your state requires you to pay payroll taxes, be sure to account for them in your budget. This will give you a realistic idea of your obligations and help you avoid unpleasant surprises.
Stay on top of federal and state tax deposits.
Missed or late payroll tax payments can lead to costly penalties, so be sure to have the due dates marked on your calendar. If you have someone else doing your payroll, ask them to automate the payments to ensure they’re made in a timely manner.
Know your obligations for providing health insurance.
Businesses with over 50 employees must provide health insurance coverage to their full-time employees. If your business is smaller (under 25 employees) and the average salary at your business is under $50,000, you can get a tax break for covering at least 50% of the cost of your employees’ health insurance coverage.
If you don’t have the time to keep up with increasingly complex payroll regulations, you don’t have to. A Professional Employer Organization (PEO) can take payroll off your hands, giving you hours of time back each week while ensuring your business is always in compliance with current regulations. A PEO company also handles all your human resources administration, ensuring your business stays in compliance with current labor and OSHA regulations.