As a new business owner, the thought of bringing on employees can be both exciting and intimidating. It is exciting because adding employees indicates that your business is growing. You are beyond the point of doing everything yourself and you have the ability to hire on employees. Hiring employees for your start-up can also be intimidating because they come with new responsibilities on your part. First, you have to find the right people to hire and then you will have to train and manage them until you are comfortable with their ability to do the job well. But, for some new business owners, the most intimidating part of hiring on employees is navigating the accounting changes that must occur in order to pay the employees and the government properly. If this is you, there are some basic concepts that you need to learn about to become more comfortable with the process of calculating and managing payroll.
- Employee Pay
The way you pay your employees will depend both on your industry and the type of position. You will likely have employees that are paid differently within your business. For example, if you own a restaurant you will have employees that are paid hourly, such as the host or hostess and kitchen staff. The wait staff will likely be paid on an hourly plus commission (tips) basis and you may have people in management that receive salaries. As the employer, it is your responsibility to make sure that your employees get paid accurately and on time. The best way to do this is to set up systems that make the process run smoothly. There is a large selection of software options available for keeping up with and managing payroll. In addition, you can work with an accountant or accounting firm to help you with the whole payroll process. Professional help is the best option if you are unsure of how to calculate and manage payroll on your own.
Both you and your employees are expected to pay taxes based on the employee’s earnings. Social Security and Medicare taxes are split between you and the employee. As of 2016, you-as the employer- are required to pay 6.2% of the employee’s gross earnings for Social Security tax and 1.45% for Medicare tax. The employee is required to pay the same percentages. One important thing to remember here is that you must insure that both you and your employee are paying the proper amount of taxes with each paycheck.
There are some taxes that you as the employer are solely responsible for. These include federal and state unemployment tax payments. The federal unemployment rates are currently at 6% of the employee’s gross wages and there is a cap to how much you have to pay in a given year. The state rates vary so you will need to check with your state to make sure you are paying out the correct percentage. It is important to keep up with the current tax requirements because the rates can change each year.
- Benefits and Deductions
Benefits and deductions can also have a big impact on payroll. Employer paid benefits can include things such as insurance and paid time off. Employees can choose to deduct certain things from their paycheck on a pretax basis such as retirement contributions, flexible spending accounts, and supplemental insurance. You do not have to contribute to the deductions, but you are responsible for making sure they are calculated and taken out correctly.
Hiring employees for the first time will be demanding of your time and energy on the front end. As a new business owner, there is a lot to learn about the laws and processes related to calculating and managing payroll. But, as you learn and put procedures into place, the whole payroll process will become easier and more automated. If accounting and taxes are not part of your expertise, there are professionals available that can teach you and help you properly set up payroll. It will be well worth the money to get everything set up correctly from the beginning.