What Small Businesses Need to Know About Payroll

by Kelly Clay

Payroll is more than just having enough cash to pay your employees on time. There's other things you need to know — like how employees should be classified, the forms you'll need and what they are, withholding taxes, and how to address things like reimbursement and expenses.

Is your business finally profitable enough to hire your first employee or two? While you may be familiar with contractors, hiring an employee requires a lot more legal legwork than just filling out a W-9 form. You'll want to be sure you understand the ins and outs of payroll before you bring your first full or part-time employee onboard to ensure they're paid the right way.

Classification

Employees are classified — by federal and state laws — as either exempt, non-exempt, or as contractors. Non-exempt employees are eligible for minimum wage and overtime, but exempt employees do not qualify for overtime. In some cases, they don't qualify for minimum wage, either. But in order to be classified as exempt, employees need to meet very specific legal requirements. Before you begin paying them, make sure you are correctly classifying your employees. If you classify an employee incorrectly, they can miss out on certain benefits like overtime, unemployment insurance, and family and medical leave. Make sure you understand the difference between an independent contractor and an employee.

New Hire Procedures and Taxes

As soon as your new employee is hired, you're required to perform new hire reporting with your state agency, which means submitting basic employer and employee information to them. The agency must confirm that the employee is legally allowed to work in the country, as well as provide the necessary tax forms — including a W-4 for federal income tax withholding and the state's tax-withholding form. If there's any confusion, review the Employer's Tax Guide from the IRS[1].

Wages

Payroll is more than about issuing a paycheck. Before you set up payroll, be sure you know what type of wages your employee is legally entitled to, and what wages you'll be paying them. Do they include commission and bonuses? What about vacation, sick days, and other kinds of personal days? You also need to be aware of federal and state laws concerning not just minimum wage and classification, but paid breaks and overtime. Understand what your employees are legally entitled to, and decide what you'll be providing in addition.

Deductions

You'll need to know how to calculate mandatory deductions when you're setting up your payroll. These deductions include federal, state, and local taxes, as well as state disability insurance and wage garnishment. If you are offering your employees health and life insurance, retirement contributions, or other kinds of benefits, you'll have to make those deductions as well.

Accounting

Payroll requires a lot of attention to minute detail, so consider hiring an accountant or a third-party accounting company to manage your books. Not only will a good accountant keep track of these details for you, but they can also make sure you're following all necessary payroll laws and help keep track of the many tax deductions available to small business. If you decide to take on accounting yourself, there are plenty of online platforms that small businesses use to manage payroll and report taxes to the government. But whether you decide to outsource accounting or keep it in-house, understand that you are responsible for reporting — and paying — all payroll taxes.

About This Author

Kelly Clay is a freelance writer from Seattle with a focus on social media and technology trends. Her work has been featured on Forbes, VentureBeat, WearableWorldNews, LockerGnome, and TechNewsDaily.


ARCHIVES

Cash Flow Challenges

Insights on the top cash flow challenges business owners are facing today.
Browse All Articles »


Sign Up Now

Receive our weekly email with featured articles and valuable insights for today’s business owners.
Subscribe »


We've Made One Business Decision Easier —
Business Checking from PNC

Earn a cash reward when you open a qualifying PNC business checking account by 12/31/17. Get Offer Details »


Start Your Cash Flow Conversation

Give us a call at 1-855-PNC-CFO5 (1-855-762-2365) or fill out our simple form and a PNC Business Banking representative will get in touch with you.
Request a Contact »

Important Legal Disclosures and Information

  1. https://www.irs.gov/publications/p15/index.html

PNC is a registered mark of The PNC Financial Services Group, Inc. (“PNC”). This article has been prepared for general information purposes by the author who is solely responsible for its contents. The opinions expressed in these articles are those of the author and do not necessarily reflect the opinions of PNC or any of its affiliates, directors, officers or employees. This article is not intended to provide legal, tax or accounting advice or to suggest that you engage in any specific transaction, including with respect to any securities of PNC, and does not purport to be comprehensive. Under no circumstances should any information contained in the presentation, the webinar or the materials presented be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy or should it be considered legal or tax advice. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Neither PNC Bank nor any other subsidiary of The PNC Financial Services Group, Inc., will be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission.  Banking and lending products and services, bank deposit products, and Treasury Management products and services for healthcare providers and payers are provided by PNC Bank, National Association, a wholly owned subsidiary of PNC and Member FDIC. Lending and leasing products and services, including card services and merchant services, as well as certain other banking products and services, may require credit approval.