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Are Your Payroll and Payroll Taxes Being Done Legally?

When we think about payroll, we typically just think about the act of issuing paychecks to employees. However, if you’ve ever tried to run payroll on your own, you know that there is FAR more to it than simply cutting a check.  An error in the process, can land you in a lot of hot water with your employees and even more trouble with the authorities.

Below, we outline just SOME of the legal considerations associated with staying compliant with payroll for your business.

  • Get set up: Before you can ever even hire a single employee, you have to first get your Employer Identification Number (EIN) or Employer Tax Identification (ID) from the Internal Revenue Service (IRS). This number is necessary for reporting taxes and other information to the IRS, as well as to state and local agencies.
  • Be prompt: This one seems obvious, but once you have employees, you are legally required to pay them and to do so in a fashion that the feds describe as “prompt.” While the language is decidedly ambiguous, ultimately what it means is that you should pay your workers soon after the pay period ends (no matter the length of that pay period). You’ll also find that the government wants their cut of the check (in the form of taxes) promptly, so you have a double incentive to be on time!
  • Know your forms: A big part of the payroll process is knowing your paperwork! For example, W-2s need to be handed out annually to all employees, while 1099s need to go out to your contractors (Check out the IRS website to figure out whether you have an employee or contractor because it’s not always as straight forward as you would think). There’s also several other forms based on your state, as well as the type of work you do and how you pay your employees.
  • Get a storage system: If you want protection from future lawsuits and audits, the best thing that you can do is develop a system to accurately and efficiently store your payroll records. This includes records of hours worked, as well as copies of the wages, taxes, and other withholdings paid to your employees.
  • Be right: When it comes to penalties, the feds (and your employees!) aren’t going to look kindly on any errors that you make in issuing that payroll! Check, double-check, and triple check your orders – including that you calculated overtime correctly – before you hit send on those checks (or better yet, get them checked by an accountant like we do here at Abel HR!)
  • Be mindful of taxes: When you run payroll, you have to know how much needs to be withheld for federal, state, and local income taxes, as well as FICA (which is withheld from workers and paid by you, as the employer). Use the W-4 form your employee filled out when they were hired to guide income tax withholdings, while FICA taxes will be deducted based on a percentage of the employee’s total pay. Another important caveat? Make sure you’re paying the correct taxes to the correct folks – it can prove more confusing than you think, especially if you have employees that reside in other states or multiple locations for your business.
  • Garnish correctly: Another area where errors frequently occur is in wage garnishments. The bottom line here is that you must withhold what the employee – and the courts – say you must withhold when they request it. Your role is to not only make sure you are calculating the garnishments correctly, but that they are appropriate for the employee’s pay level.   
  • Pay out post-job: Whether someone walked out the door voluntarily for a brighter future or went out like a dumpster fire, you need to pay them out for their time – and, per federal and state regulations, you need to do it in a timely fashion or else you could find yourself on the receiving end of some pretty hefty fines!

If you think this sounds like more effort than it’s worth, give us a call at 609.860.0400 to discuss how we can help you better manage various facets of your payroll process.

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