Doing payroll has become so much easier than it used to be for small business owners. But there are still some minefields when it comes to state and federal compliance. Here are six of the most common.
- Business or Personal?
A great admin might want to help you in any way they can, including personal errands. But time spent having your admin fetch your dry cleaning and drug store prescriptions isn’t deductible as a business expense, even if it makes you more productive at work.
Be sure you separate your business payroll from personal payroll to avoid tangling with the IRS on this issue.
- New Hire Reporting
It’s not every day that a small business needs to hire additional help, and new hire reporting is easy to overlook. It’s due to your state within a certain number of days of your new employee’s hire date. Some payroll companies will file it for you, and some won’t, so it’s best to check so you don’t make the common mistake of forgetting to file this report.
- Workers’ Compensation
Even if you’re a veteran employer, you may have coverage holes in your workers’ compensation coverage. Do you have employees who work at home? Are you sure they are covered? In some states, employees have to be specifically named in the policy before they are covered to work at home.
Be sure you ask the right questions so there’s not a risky gap in this essential protection for employers.
- Posters
There are both state and federal notices that must be posted in a place where employees can read them. California is especially zealous about issuing fines (up to $7,000 per location) for employers who don’t have these notices posted. These fines are especially easy to avoid, since both federal and state Departments of Labor give these posters out for free.
- Employee versus Contractor
The proper classification of a worker as a W-2 employee or a 1099 contractor has long been an area of scrutiny for the IRS. The IRS has rules as well as court cases that have established the guidelines that exist in this area.
If you classify a worker as a contractor when they should be an employee, then you can be held liable for paying employment taxes on them.
- Bonuses
Bonuses are often a spur-of-the-moment thing, or something done at year-end when we’re occupied with the holidays. It can be easy to forget that bonuses need to be run through payroll like all other wages, so that the proper deductions and taxes can be calculated.
Use these six items as a checklist to reduce your business risk in the payroll compliance area. And contact Innovative Financial Services, LLC today if you still need help in this area.