![](/content/dam/pnc-thought-leadership/small-business/pnc_tl_hub_business_know_about_payroll.jpg)
Payroll is more than just having enough cash to pay your employees on time. There are 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 parttime 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].
What Small Businesses Need to Know About Payroll
Is your business profitable enough now to hire your first new employee? Be sure you
understand payroll before bringing any new hires onboard.
Payroll is more than just having enough cash to pay your employees on time.
There are other things you need to know — like how employees should be
classi
fi
ed, the forms you'll need and what they are, withholding taxes, and
how to address things like reimbursement and expenses.
Is your business
fi
nally pro
fi
table enough to hire your
fi
rst employee or two?
While you may be familiar with contractors, hiring an employee requires a lot
more legal legwork than just
fi
lling out a W-9 form. You'll want to be sure you
understand the ins and outs of payroll before you bring your
fi
rst full or part-
time employee onboard to ensure they're paid the right way.
Classi
fi
cation
Employees are classi
fi
ed — 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 classi
fi
ed as exempt, employees need to meet very speci
fi
c 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 bene
fi
ts like overtime, unemployment insurance, and
family and medical leave. Make sure you understand the di
ff
erence 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 con
fi
rm 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 classi
fi
cation, 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
o
ff
ering your employees health and life insurance, retirement contributions,
or other kinds of bene
fi
ts, 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 businesses. 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.
[1]
https://www.pnc.com/insights/small-business/running-your-business/what-you-need-to-know-about-payroll.html#legal