When it comes to your company’s payroll, there is far more to consider than just the salaries of your initial employees. A well-organized payroll structure can protect your company from the IRS and may result in savings in both time and cost. Properly completing company payroll is often a task that most companies struggle with, so a well-structured payroll system is essential.
The US Census Bureau has general guidelines for how much businesses should spend on payroll, between 20-30% of gross income. However, this is not gospel truth and depends on the company itself and the industry it’s in. Every company is different, so it’s important to take this into consideration when making decisions about payroll.
When starting a new business, it’s important to remember to file various payroll reports and taxes on time. This includes filing New Hire Reports, which are required for businesses who keep wage taxes or pay Social Security/Medicare Tax. Failing to do so can result in trouble with the IRS.
1. Make Certain to File W-2’s Correctly
You must file a Form W-2 for every worker and Independent Contractor you pay, regardless of how much they are paid. This includes family members or friends who receive wages from your company. The only exception is if the person is paid entirely in tips, which are then properly reported to you.
If your company pays a total of $600 or more in wages during the year to any one worker, you must file a Form W-2 for that worker. This includes Independent Contractors who are considered self-employed for tax purposes.
2. Never Miscalculate Wages Earned and Taxes Paid IRS Tax Reporting Forms, Particularly Form W-3
Every year, the IRS Tax Form W-3 is submitted to the Social Security Administration. This form reports overall earnings, Social Security and Medicare earnings, and the corresponding taxes withheld for all workers on the company payroll for the prior year. The deadline for submitting this form is February 28th each year.
3. New Hire Complete Form W-4 and Instruct Your Employees to Update W-4s Annually
Every year, employees should fill out a W-4 form to provide their employers with the necessary information needed to collect taxes from their wages. This will help meet the federal government’s income tax obligations. Employers should have a system in place that requires employees to complete a Form W-4 annually.
4. Mandatory Employee Validation of Authorization to Work in the U.S. – Form I-9 Compliance
Federal legislation requires all employees in the U.S. to complete a Form I-9, which allows employers to verify an employee’s identity and work eligibility status. The form is available from the U.S. Citizenship and Immigration Services (USCIS) website.
All employees must provide certain information on the Form I-9, including their full name, date of birth, Social Security number, and current address. They must also provide documentation to verify their identity and work eligibility. Commonly used documents include a passport, green card, or birth certificate.
The Form I-9 must be completed and signed by both the employer and employee. The employee must sign the form before their first day of work. The employer must retain the Form I-9 for each employee for a minimum of three years after the date of hire or one year after the date of termination, whichever is later.
Payroll can be a daunting task for any business, but with the right structure in place, it can be simplified and less time consuming. By following the guidelines provided by the US Census Bureau, as well as filing all necessary reports and taxes on time, you can avoid trouble with the IRS.