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