Whether you are setting up a new company or expanding your business and hiring employees for the first time, you need to understand several basic facts about payroll. Here are six things you should definitely know.
1. Wage Payment Laws Differ from One State to Another
In the United States, the minimum wage amount changes from one state to another, so make sure you have a good understanding of both federal and state minimum wage laws before you begin hiring employees. You should also be aware that rest break requirements and set paydays differ in some states.
2. You Must Abide by Payroll Tax Rules
As an employer, it is your responsibility to withhold federal and applicable state and local employee taxes, in addition to your own portion of taxes. If you fail to comply by reporting accurately to the relevant agency by the due date, you will be financially penalized and could face criminal penalties. Furthermore, you need to make sure the paystubs you use contain all of the required information. Thankfully, it is easy and quick to create and print pay stubs with this paystub generator. It includes a handy auto-complete and calculation feature for earnings and tax deductions.
3. The FLSA Requires You to Keep Certain Employee Records
The Fair Labor Standards Act states all employers must maintain certain employee records for specified periods. There are different rules for the records of exempt and nonexempt employees. Common documents that need to be kept include contracts, time cards, and wage deductions and additions.
4. Different Rules Apply to Exempt Employees and Nonexempt Employees
The requirements for exempt and nonexempt employees are set by the Fair Labor Standards Act. You need to know about the rules for each. For example, nonexempt employees qualify for overtime if they work more than forty hours in a week. If exempt and non-exempt employees are misclassified, it can lead to incorrect pay. In addition to federal rules about exempt and non-exempt employees, some states have their own rules concerning exemption statuses.
5. Employers Must Inform the Relevant State Agency When They Hire New Employees
Each state has a designated agency that all employers in the state must report to each time that they hire new employees. The purpose is to verify that the employee is legally permitted to work in the country and can be given the correct tax forms, such as a W-4 form that is used for federal income tax withholding. Employers must submit basic employer and employee information to the relevant state agency.
6. Independent Contractors Are Too Often Mistakenly Classified as Employees
The misclassification of workers by employers has been a growing problem in the United States. You need to make sure you do not do it. The main problem is classifying independent contractors as employees or vice versa. By doing so, you can cause employees to not receive certain benefits, like overtime and medical leave. So, remember: an independent contractor is self-employed and responsible for paying his or her own taxes whereas an employee is processed through payroll.
Final Thoughts
In addition to the above basic facts about payroll, you need to know more detailed aspects, such as salary payment schedules, payroll audits, hiring members of the same family, pay stub requirements, and pre-tax benefit calculations. Furthermore, payroll laws are susceptible to change, so you need to keep up-to-date with the rules for the current and upcoming year.
As a business owner, you need to understand each part of your business, and that includes payroll. However, it could be useful to gain the services of a payroll consultant or financial expert to help you with the payroll process. And if you have any doubts about payroll, contact the administering agency for your state.
