8 Extremely Important Tips for Businesses Beginning to Hire

1. Make sure you have a Federal Employer Identification Number (FEIN): All entity types including corporations, partnerships, limited liability companies, and sole proprietors must acquire a FEIN before hiring employees. The FEIN is used for tax filing and reporting purposes. You can apply for a FEIN online using the IRS’s online system at  https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

2. Understand your state and local payroll requirements: You must understand your state and local tax, in addition to withholding requirements. These requirements vary greatly from state to state. A great resource to find out your state’s requirements is  www.payroll-taxes.com. Under the “State Tax” tab you simply select your state and it will bring up a summary page of your state’s requirements for payroll. It also includes information on any registration(s) you may need to complete to get up and running with State Unemployment Tax, State/Local Withholding, etc.

3. Know the employment record keeping requirements: There are multiple time requirements and types of required information for your payroll/employment records between the Department of Labor, Internal Revenue Service, and State. The longest time requirement is the IRS and is stated as “at least four years after filing the 4th quarter for the year.” So, if you keep all of your payroll records for at least 4 years then you are in compliance with the DOL and the IRS. Even though some of the information may have shorter time requirements it is much easier to use the longest time requirement so you won’t have to worry. For specific record types and time requirements visit the Department of Labor’s page at https://www.dol.gov/whd/regs/compliance/whdfs21.pdf and visit the Internal Revenue Service’s page at https://www.irs.gov/businesses/small-businesses-self-employed/employment-tax-recordkeeping.

4. Find a timekeeping solution that works for you: There are many options available for employers when it comes to timekeeping. From manual time sheets to fingerprint time clocks all the way to smart phone timekeeping apps. It’s essential to pick a solution that works best for your business. Accurate timekeeping can save employers a lot of time, money, and aggravation. First, it will save time when your payroll time is due if you won’t have to chase employees around to get their timesheet or verify the accuracy of their hours. Next, it will save you a lot of money if you are absolutely sure that all employees’ hours are accurate. Time theft can become very expensive over time. If you have a $20/hour employee that clocks in 10 minutes early and clocks out 10 minutes late every day, that equates to $33.33/week or $1,733.33/year in overpaid wages before any overtime is considered. If the extra time happens to put that employee into overtime hours, it only gets more expensive for the employer. Last, accurate timekeeping means that you are in compliance if the Department of Labor ever wants to audit your records. This will save you a lot of aggravation if it does come to an audit.

5. Choose a payroll period: It is best to choose the right payroll period for your business from the beginning because it can be difficult to change the payroll period once employees get used to the current one. Options include weekly, bi-weekly, semi-monthly, and monthly. Weekly and bi-weekly are the two most common pay periods. Weekly gives employees’ access to their earned wages soon after the actual time is worked and is what most employees prefer. Bi-weekly is less expensive than weekly for an employer, since you only need to run half the amount of payrolls each year and every payroll costs money to run whether it is with a payroll provider or paying an in-house employee’s wages to run it. There are pros and cons to all the different pay period types, and it’s important to choose what works best for your business.

6. Be prepared for on-boarding new hires: Hiring an employee comes with required paperwork which can be made much easier with preparation. Each new hire must fill out and sign a Form W-4 and a Form I-9. Some states have their own version of a Form W-4 for calculating state withholding. Also, it is required that the employer complete New Hire Reporting with their state, which can be done online with most states. Then, you have employer forms that need signed, such as Non-Compete/Non-Discloser forms, acknowledgment of receiving the Employee Handbook, Direct Deposit Authorization, etc. Last, an employer can decide to E-Verify all their new hires as an added step to verify an employee’s eligibility to work.

7. How will you process payroll: You have a few options to process your payrolls, here are some choices: you can run payrolls in-house using payroll software or you can outsource this function to a payroll service provider, PEO, or Employee Leasing. Outsourcing your payroll can be a very efficient option and can aid employers with running accurate payrolls and avoiding penalties. The cost of a payroll service provider is normally similar to the cost of paying an employee to run the payroll using payroll software when you include labor and software fees. A payroll service provider can also help you with the majority of the items on this list.  

8. Continued compliance: An employer will need to continue compliance after the hiring process. This includes paying taxes timely, filing accurate tax returns on time, complying with withholding orders, responding to unemployment claims, etc. Staying compliant is very important and can save employers a lot of money over time, by not getting assessed large penalties or fines by the IRS, Department of Labor, State Agencies, and others.

The Basics of a Paycheck

Basic definitions

Gross Payroll: Total amount of money an individual earned before taxes and deductions.

Deductions: Amounts that are subtracted from an employees’ pay including taxes and other pre and post-tax deductions.

Reimbursements: Amounts repaid to an employee for expenses incurred by that employee related to the business.

Federal Income Tax Withholding: Amount withheld for payment of an individual’s Federal Tax on their income. This amount is determined by an employee’s Form W-4.

Federal Insurance Contributions Act (FICA): Taxes withheld from an individual’s paycheck that go toward Social Security and Medicare.

State Income Tax: Amount withheld for payment of an individual’s State Tax on their income.

Net Paycheck: Gross payroll minus all applicable taxes and other deductions.

Deductions

What deductions come out of my paycheck? Good question. There are four main tax deductions that are withheld from your gross pay. They are:

1)         Medicare tax: Medicare tax is a payroll tax. It falls under the Federal Insurance Contributions Act (FICA). It is taken out of an individual’s check in support of, you guessed it, Medicare. The 2016 Medicare tax rate for employees is 1.45%. This rate is good for wages up to $200,000 for 2016. Any excess wages after $200,000 are subject to an additional 0.9% rate on top of the 1.45%.

2)         Social Security Tax: Social Security tax also falls under FICA and is a payroll tax. Just as Medicare it is withheld for the support of Social Security. The employee and employer pay 6.2%. Individuals are only taxed up to $118,500 for 2016. There are no additional withholdings after the $118,500 is exceeded.

3)         Federal Income Tax Withholding: Amount withheld for payment of an individual’s Federal Tax on their income. The amount that is withheld depends on three things: the paycheck amount, filing status, and number of allowances. When hired your form W-4 allows you to choose your filing status and number of allowances. You can file at a single rate or married rate. You can also choose to withhold an additional amount.

4)         State/Local Income Tax: If you’re lucky enough to live in Alaska, Florida, Nevada, South Dakota, Texas, Washington, or Wyoming then state income tax is something you don’t have to worry about. As for the other 43 states in the U.S. state income tax is something that is deducted from your gross pay amount. Most states that levy states income tax work much like federal income tax as the rate comes from a form similar to a W-4. Some states have a flat tax rate meaning everyone pays the same rate for all income levels; these states are Colorado, Illinois, Indiana, Massachusetts, Michigan, Pennsylvania, and Utah. Their rates range between 3-5.2%. Tennessee and New Hampshire only tax dividends and interest income.

Net Check

Here’s how your net check amount is calculated:

Gross Payroll

-Minus Pre-Tax Deductions

-Minus Federal Tax Withholdings and FICA

-Minus State/Local Income Tax (if applicable)

-Minus Post-Tax Deductions

+Non-taxable Reimbursements

=Equals Net Paycheck

Sources:

https://www.irs.gov/taxtopics/tc751.html

http://tax.laws.com/fica-tax

https://www.irs.gov/Individuals/Employees/Tax-Withholding

http://www.usatoday.com/story/money/personalfinance/2014/04/26/these-states-have-no-income-tax/8116161/

http://www.hrs.colostate.edu/benefits/ben-pre-tax-vs-post-tax.html

3 Things Employers Need to Know about Workers' Compensation Insurance in Florida

Workers’ Compensation Insurance provides medical benefits and wage replacement for employees who are injured while performing normal job duties in exchange for relinquishment of the employee’s right to sue the employer for the injury.  The majority of States in the U.S. require employers to have a workers’ comp insurance policy, with very few exceptions. Individual states monitor and regulate workers’ comp so there are no standard laws. Failure to meet your state’s workers’ comp requirements can lead to fines, lawsuits, and in extreme cases, jail time. To help avoid those consequences here are 3 things you should know about Florida workers’ compensation.  

1. Who needs coverage in Florida and how do I get it?

Now you may be asking who needs to be covered by workers’ compensation insurance. The answer depends on what type of business you have and the number of employees you have. There is a very fine line between construction and non-construction businesses according to workers’ comp laws. All construction businesses have to cover all employees; however, if you have a non-construction business you are only required to have workers’ comp insurance if you have 4 or more employees. Companies in the agriculture industry have to carry coverage if they have 6+ employees. Any questions about what type of company you have can be answered by a local insurance agent. The next question you may be considering is, how do I find workers’ compensation coverage?  The two main places to get insurance is a commercial insurance agency or a payroll provider, including PEO’s and Employee Leasing.

2. Are there exemptions?

The main thing to keep in mind with exemptions is who can be excluded from coverage. The only people exempt from coverage are business owners and they have to file for the exemption. Employees are never allowed to be exempt. A non-construction corporation or LLC can exempt all of their officers and members; however, a construction corporation or LLC can only exempt up to 3 officers and those officers have to own at least 10% of the company. All officers, members, sole proprietors, and partners can elect to be covered by workers’ comp coverage. 

3. What’s considered an accident?

In order for workers’ compensation to be used there must be an accident while doing a job assignment. What constitutes as an accident? The Florida laws say that an eligible workers’ comp accident is an unexpected or unusual event that happens suddenly. An accident can also include injury or disease caused by exposure to a toxic substance and being subject to the acceleration of death or a preexisting issue. If an employee is hurt while under the influence of drugs or alcohol then it is not considered an injury eligible for worker’s compensation. 

Additional Tip: Rates vs. Estimated Premium

When getting quoted workers’ compensation, the main thing to consider is the rate in which you are paying. With a traditional workers’ comp policy, you are quoted based of payroll estimates for the annual policy period, and then you pay based off the estimate. When the annual policy period is over, you will then go through a Workers’ Compensation Audit (Not as scary as it sounds). The audit will determine if are overpaid or underpaid. If overpaid you will get a refund from the insurance company, if you are under paid you will owe the insurance company. With a pay-as-you-go workers’ comp policy, you are paying your insurance based on the actual payroll, using the quoted rate. So, to compare traditional and pay-as-you-go, you can just compare the rates from both quotes.

See the current FL rates by class code HERE 

 
Sources:
•    http://www.entrepreneur.com/encyclopedia/workers-compensation-insurance
•    http://www.myfloridacfo.com/division/wc/Employer/coverage.htm
•    http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0400-0499/0440/0440ContentsIndex.html&StatuteYear=2015&Title=-%3E2015-%3EChapter%20440

3 Differences Between Payroll Service Providers and Professional Employer Organizations

PSP or PEO?

So you decided to outsource your payroll, now what? A common decision business owners have is choosing a type of payroll outsourcing.  Two common types of providers are Payroll Service Providers and Professional Employer Organizations. Here is a brief breakdown of each:

Payroll Service Provider (PSP):  Provides payroll processing for the business and the business remains the employer of record.

Professional Employer Organization (PEO): Provides payroll processing with the PEO as the employer of record, also known as co-employment.  This is not to be confused with Employee Leasing. With a PEO the business is responsible for recruiting, hiring, and training even though the PEO is the employer of record.

1. Employer of Record

A professional employer organization is known for co-employment meaning that you, the employer, can outsource certain managerial tasks. The tasks include but are not limited to administration of employee benefits, workers’ compensation insurance, and payroll. One key thing here is that whatever the PEO uses for benefits and insurance, you must use too if you enter into a contract with a PEO. A Payroll Service Provider may have options for employee benefits and workers’ compensation insurance either in house or through strategic partnerships.  Last, when using a PEO you use their State Unemployment Tax Rate, which may be higher or lower than your rate as the employer of record.

2. Worker’s Compensation

Choosing to outsource your payroll with a Professional Employer Organization also means they will provide you with workers compensation insurance.

If you choose a Payroll Service Provider you will be responsible, as an employer, to be insured for Worker’s Compensation if your business meets the criteria of your state’s laws that would require you to have Workers’ Comp Insurance. PSP’s have options of their own for Worker’s Comp from partnerships to local insurance agents.

So what’s the difference between getting coverage between the two?  A PSP has more to offer when it comes to payment options and carriers. The first way is traditional Workers’ Comp which is putting a down payment on the coverage and making monthly payments. The second way is a pay-as-you-go program which allows you to pay it each pay period based off your actual payroll, the same way as a PEO charges.

3. Cost

Costs are a big deal to every business owner, so let’s get down to it. The cost of a PSP versus a PEO is hard to compare because there are so many pricing models for each type of provider. What can be said is that most PSP’s require no contract to use their payroll services, where as a PEO normally require a contract for a certain period of time. So let’s say you’re not happy with the PEO’s service, you’re going to face an early termination fee. A PSP is more flexible. Most PSP’s allow you to opt out at any time because the service is from pay period to pay period.   

One very important thing to keep in mind, cost-wise, is State Unemployment Tax (SUTA). When you have a PEO maintaining and paying your state unemployment tax you have to pay at their rate, since they are the employer of record. If you use a PSP and remain the employer of record, you can lower your SUTA rate significantly over time by controlling employee turnover using good hiring practices. So, you get control of your unemployment rate.

Closing

Choosing how to outsource your payroll is about making the right choice for your business. Knowing the facts pertaining to employer of record, worker’s compensation, and cost between a professional employer organization and a payroll service provider can help make that decision. There are so many different payroll situations out there that getting quotes from both can help you compare actual costs and benefits for each type.

Florida Payroll Updates for 2016

Below is a brief update for Florida minimum wage and the Florida Reemployment Tax wage base for 2016.

Minimum Wage

The minimum wage in Florida will remain unchanged for 2016. Florida minimum wage rate will remain at $8.05 an hour. The state tip credit will also remain unchanged for 2016 at $3.02 an hour.

Reemployment Tax (Unemployment Tax)

The Florida Reemployment taxable wage base will remain unchanged at $7000.00 for 2016. In the State of Florida, Unemployment Tax is called Reemployment Tax. 

The Advantages of Outsourcing Payroll

Every business owner at some point has thought about outsourcing their payroll if they haven’t outsourced it already. There are three main advantages to outsourcing your payroll. The three include; freeing up your time, avoiding IRS penalties, and the expertise of professionals.

Freeing Up Your Time

By outsourcing payroll you now have more free time to focus on revenue producing aspects of your business rather than worrying about processing this week’s payroll. It can also free up your employee’s time if you have someone doing your payroll in-house. If you decide to or already have decided to outsource your payroll, you can now cater better to your customers and grow your business.

Avoiding IRS Penalties

Nobody likes making mistakes but when a mistake can lead to penalties and interest, then it’s time to start thinking of ways to avoid those costly mistakes. When you chose to outsource your payroll this burden is taken off of your business. Payroll professionals stay up to day on taxes, rules, and regulations so mistakes rarely happen. Last, most payroll processors will guarantee the accuracy and timing of the payroll, so there is complete peace of mind.

Expertise of Professionals

Your payroll provider knows the “ins and outs” of payroll. Payroll professionals deal will complex laws and regulations every day, so they know everything from changes in taxes to government regulations. Also if you have in-house payroll the bookkeeper is usually the only one who knows the payroll process so if they leave their job they leave with their knowledge. 

Understanding Business Mileage

Business mileage is a simple way to get a tax deduction for businesses, including independent contractors. Claiming this deduction is as easy as keeping a record of business trips. The key to using business mileage to a company’s advantage is knowing what it is and what counts as business related. 

Business mileage is the miles someone drives between two business locations. It is completely independent of commuting. This is important because the IRS only recognizes mileage that’s business related for deduction purposes. A principle place of business must be determined for mileage calculation purposes. So, driving from your home to your office (principle place of business) qualifies as a commute, but when you leave the office to drive to a meeting at a client’s office, that trip would qualify as business mileage. 

There are many things that count as business mileage, but there are two main mileages; meeting a client and business operations. Meeting clients can be anywhere from going to their office or meeting them for lunch at a restaurant. Business operations are activities like going to the bank or going to buy office supplies. 

It is extremely important to remember to document all of the mileage to use it for a deduction. The deductible rate for business miles driven is 57.5 cents for 2015. The IRS can choose to not allow the mileage deduction if proper records aren’t kept. Proper records include total miles driven, dates of business trip, the destination and the purpose of the trip. If the trip is for meeting with a client or a run for supplies make sure to include the person you met with or the supplies you bought. 

Weekly vs. Bi-Weekly Payroll Frequency

          One of the first decisions when a company decides to bring on employees is payroll frequency. This decision can impact a business in many ways, so finding the right payroll frequency for a company is crucial. The two most common types of payroll frequencies are weekly and bi-weekly. Both of these have their advantages and disadvantages.

          Bi-weekly payroll runs every two weeks.  It provides a cost saving option over weekly payroll because the payroll doesn’t have to be processed every week, which saves labor and supplies.  Another advantage to bi-weekly payroll is that there is half the amount of records to keep versus weekly payroll.  A disadvantage is that bi-weekly payroll is subject to a higher chance of miscalculation of overtime because hours are carried over to another week.  Another major disadvantage is that employees who live paycheck to paycheck may be used to weekly budgeting, which can cause problems for the employee when receiving payroll every two weeks.

          Weekly payroll is pretty self-explanatory, but it is often misunderstood as having to be a calendar week, meaning Sunday to Saturday.  It’s actually a seven day period that is decided on by the employer when they begin payroll. One advantage to weekly payroll is employees get to reflect on the work they put in sooner than bi-weekly pay. Weekly payroll also better matches an employee’s cash flow needs.  A disadvantage is that the weekly payroll frequency is more expensive than bi-weekly. This is due to additional labor and supplies to run the payrolls. Last, there’s also more of an administration burden for gathering hours and there are more records with weekly payrolls.