6 Payroll Basics Every Small Business Owner Should Know For Tax Filing

Small businesses with employees must withhold some of every employee’s paycheck to pay taxes to the government. At the top of the list are federal, state and local income taxes. Plus, the employer is also responsible for federal and state unemployment taxes, and their share of FICA taxes.

Additional taxes include the employee’s share of Social Security and Medicare taxes that make up the FICA contributions.

Now, a payroll provider could handle this withholding for you. This way, you never forget to withhold the correct amount from employee paychecks.

Payroll For Small Business Owners Tip #2: Pay And File Taxes On Time

The most important thing to remember is to make your tax payments on time. The uninitiated will find tax payment intervals vary depending on the type of tax.

Note that employers pay federal income tax and FICA tax on a monthly or semi-weekly basis. The federal unemployment tax is due on a quarterly basis.

Other tax forms have their own deadlines. The federal income tax Form 941 is filed on a quarterly basis and the federal unemployment tax Form 940 is filed on a yearly basis.

Payroll For Small Business Owners Tip #3: Keep Tabs On Federal, State And Local Employment Laws

Employers must comply with the number of labor and employment laws at the federal, state and local level. One of the most notable examples of federal law is the Fair Labor Standards Act (FLSA).

The act sets forth rules on minimum wage, overtime and the minimum age of workers. You should monitor your payroll to make sure the age and pay of everyone on the payroll comply with the law.

Never assume these laws will never change. Regularly check government websites for changes in policies. Or, consult an in-house or outside attorney well-versed in these laws.

Payroll For Small Business Owners Tip #4: Maintain Up-To-Date Employee Tax Forms

You want to ensure that an employee’s Form W-4 is current. This is because of the allowances specified on the form influence tax withholding.

There are other times when you might need to re-verify the employee information on Form I-9. Quite often, this happens when your employee’s authorization to work has expired.

Payroll For Small Business Owners Tip #5: Do A Payroll System Audit

Don’t rely 100 percent on an automated payroll system to reveal issues in your payroll system. Spotting a misclassified or long-departed employee on the payroll may require human intervention. The same goes for correcting accidental errors in manual timekeeping entries by workers.

The best way to avoid these issues is to appoint a member of staff as your payroll administrator. He or she can audit your payroll system and surface issues an automated payroll system can’t.

Payroll For Small Business Owners Tip #6: Correct Or Update Incorrect Employee Exemption Statuses

Since non-exempt workers are paid differently than their exempt peers, a misclassification of a non-exempt worker as exempt or vice versa can have major ramifications on the payroll.

Employers have to track and compensate non-exempt workers “time and a half” for the time they work over 40 hours per week. A requirement set by FLSA rules that employers must comply.

Under the same guidelines, exempt workers are excluded from the overtime pay standard and are not entitled to overtime pay.

Thus, if you discover a worker misclassification during a payroll audit, it’s wise to contact an employment lawyer. For example, a non-exempt worker whose role has changed may now be considered an exempt employee if he or she was never reclassified after the switch.

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