Going from a one-person small business to a small employer means you now enter a different world of responsibilities and financial requirements. And while your bookkeeping service will help you with most of them, it's a good idea to familiarize yourself with the basics of paycheck items and how they affect your business.
So here's a short primer on what your employees will see and what you as an employer must do next.
Your employees' paychecks have deductions that come in two varieties: mandatory and optional. Optional deductions will be limited for most small business employees because you likely can't offer a lot of benefits. You may have to deduct union dues or be able to offer health insurance — things you or your employee may have control over.
Mandatory deductions are the bulk of what affects paychecks s in this scenario. So, what will your employees see? There will generally be deductions for federal and state income tax withholding. The amounts deducted are determined by what the employee chose on their Form W-4 and the size of their paycheck, so it will vary. If your employee wants to change what is deducted for withholding, have them complete a new Form W-4 that you or your payroll service will enter into your system.
In addition to withholding — which can be controlled by the employee — there will also be required deductions for Medicare and Social Security contributions. In 2018, the rate is 6.20% for Social Security and 1.45% for Medicare. You and your employee cannot change these amounts. In addition, your state may require deductions like state disability insurance or unemployment contributions.
What Affects You
Once your employees have their checks, your job as an employer isn't over. Many of those payroll deductions must be remitted to the agencies that require them. Your bookkeeper will have tracked each deduction in your books so that you know how much to send and where. Tax withholding, Medicare, and Social Security taxes are sent to the IRS and your state or local tax agency either monthly or semi-weekly, depending on the size of the deposits.
Other taxes should be sent to the various agencies according to their written schedules. You will also likely have to file quarterly forms to reconcile what was deducted with what you have paid in. You may also have to contribute your employer portions as well. For IRS-collected taxes, this is largely done on Form 941.
Your bookkeeper will do most of the heavy lifting when it comes to payroll questions and dealing with remittances. But by understanding what your employees see each payday and what your business will have to pay out over the next few weeks, you can reduce your workload and keep your budget humming along.