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Check out our weekly blog posts and see the latest news and discussions happening in the HR world of business.

What Are Payroll Liabilities?

If you’ve ever run your own payroll, you know what a huge undertaking it is. In addition to calculating the correct wages for your employees, you also have to make sure that you are setting aside the correct amount for federal and state taxes, Medicare, Social Security, and a whole host of other folks who seem to have their hand out on payday! The worst part? You must repeat the whole process a mere two weeks later! 

But did you know that these folks with their hands out, including the employee themselves, actually present a liability for your business? Indeed, these so-called payroll liabilities are defined as any type of payment owed as a result of running payroll. In general, these liabilities fall into four different categories: 

Employee compensation: 
Between the time that your employees perform their work (the pay period) and the time the money actually hits their account (payday – which is typically a week or so later), those wages represent a liability. While you have every intention of paying them, the fact that your business technically “owes” employees for work already performed or services rendered makes it a liability.

Payroll taxes: 
Much like the wages set up, there is a delay between when your workers earned the money that is taxable and when said money is paid to the various agencies. In general, these liabilities cover withholdings such as federal and state income tax, FICA taxes (Federal Insurance Contributions Act, which covers social security and Medicare), federal and state unemployment taxes, and other local taxes. Again, because of that lull between earning time and deposit time to any third parties, it is counted as a liability. 

Other withholdings: 
Beyond taxes, chances are you also take a variety of deductions from your employee’s paychecks to cover contributions to health insurance, retirement or 401K plans, and even court-ordered wage garnishments. But until the appropriate parties see the money pop up in their accounts, you’re technically on the hook and liable for said payments. 

Payroll service costs: 
Unless you’re still running your payroll on your own, you likely have to pay for the use of a payroll software system, payroll processing company, or professional employer organization (PEO) to do the bulk of the heavy lifting. Of course, performing these services comes at a price, but if you are receiving a service and being billed after the fact (say, on a monthly basis), the downtime between when you pay is considered a liability. 

Now, the good news about these liabilities is that they aren’t typically on your ledger for too long. Provided you make your payments as promised, meaning that the payment is correct, on time, and sent to the correct recipient, you’re generally in the clear and won’t find yourself liable for these payments. However, it’s always best to make like a boy scout and be prepared!

In order to avoid facing payroll liabilities, we recommend that you have a cash reserve, typically enough to cover business expenses for up to three months, and also have a clear understanding of your deposit schedules for employee wages, taxes, and withholdings. Further, you should do your best to invest in a payroll system or provider that can accurately and efficiently process your payroll.

At Abel HR, we not only take care of your payroll, but we’re also sure to pay off all your other liabilities so it’s one less thing that you have to worry about. Further, our comprehensive payroll management system automatically calculates how much needs to be taken out based on your employee’s demographics, makes the deposits, and leaves you with beautifully archived data and records so that you can access it with just a few simple clicks of a button. And, in a move that we think sets us apart from our peers, we also have our payroll certified by an accountant to be 100% correct 100% of the time! 

To learn more about payroll liabilities and how a PEO can help you out, give us a call at 609.860.0400

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