Tag Archives: co-employment

common questions about payroll

Common Questions New Business Owners Have About Payroll

If you’re a new business owner, you probably have a lot on your plate. One of your biggest responsibilities is handling payroll, ensuring that taxes are withheld and employees receive their paychecks on time. It’s normal to have concerns regarding this process, and here are some of the most frequently asked questions.

 

Which payroll taxes must be withheld from employees’ paychecks?

While there are a variety of optional payroll deductions that are voluntary such as health insurance, retirement plans and life insurance, there are five deductions that must be withheld:

  1. Federal income tax – This is broken down into tax brackets, and the amount due depends on how much a person earns per year. The specific rates can fluctuate from year to year, but you can find the tax brackets for 2015 here.
  2. Social security tax – This type of tax is applied to any income that comes from labor. You are required to withhold a minimum of 6.2 percent from employees’ paychecks.
  3. Medicare – Your employees are required to pay 1.45 percent on this tax. If they earn more than $200,000, they must pay an additional 0.9 percent.
  4. State income tax – The specific amount of money from state income tax varies, and you can find the tax rate range for your state here.
  5. Local tax – Again, this can vary and can include things like city taxes, school district taxes, etc.

 

When are employment taxes due?

For quarterly federal tax returns, the due dates are April 30, July 31, October 31 and January 31. This is when you will use Form 941 to report income tax, social security and Medicare. When it comes to actually making deposits, you can choose between a monthly and semi-weekly schedule.

If you choose monthly, then you have until the 15th of each month to deposit taxes for the previous month. For the semi-weekly schedule, you must deposit taxes each Friday for payments made on Saturday, Sunday, Monday, and/or Tuesday from the previous week. If you have any further questions about deadlines, this resource from the IRS should help.

 

How do I avoid a tax penalty?

For starters, you need to get organized and simplify payroll to the point that you have no trouble maintaining accurate records. That’s why it’s recommended to utilize some type of payroll software. This is relatively inexpensive and can assist with you a variety of tasks like automatic calculations, employee time tracking and direct deposit. It’s also important that you stay on top of changes to laws and regulations that affect areas like minimum wage, FICA rates and employee benefits.

In addition, you may want to enlist the services of an HRO to handle all of your payroll tasks for you. These firms understand all of the ins and outs of payroll processing and can come up with customized solutions for your business. That way you can outsource your payroll and know for sure that everything is handled correctly.

Getting acquainted with payroll is extremely important when you’re a new business owner because what you don’t know can hurt you. Fortunately, some research and the right resources should help you get a grasp of the process.

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Understanding Co-employment

The concept of co-employment where an employer outsources tasks to a professional employer organization (PEO) has gained some serious ground in recent years. According to a survey by the National Association of Professional Employer Organizations (NAPEO), “it is estimated that 2-3 million Americans are currently co-employed in a PEO arrangement. The average PEO has grown more than 20 percent per year for each of the last six years.”

Due to the results that many companies have experienced, co-employment is attracting the attention of more and more business owners. Let’s now discuss the basics of this type of arrangement to help you get a better idea if it could work for your business.

 

What is Co-employment?

The proper definition is “a contractual allocation and sharing of employer responsibilities between a professional employer organization (PEO) and client.” Simply put, you outsource various tasks to a third-party and they help you run your business more effectively and efficiently. There is a high degree of customization with this arrangement, so you can determine how much or how little you want to outsource to a PEO. Some companies only outsource a handful of tasks, while others opt for a large percentage.

 

Co-employment is a Partnership

With this type of relationship, you transfer many responsibilities to a third-party. You’re collaborating with a professional firm that will handle the duties that you either don’t have the time for or don’t feel comfortable with doing on your own. You also minimize some of your risks because and don’t have the sole burden of ensuring compliance with laws and regulations. A PEO maintains a certain level of control over the direction and culture of your company because they have the right to hire, reassign and terminate employees.

 

Common Services of PEOs

Although PEOs can run the gamut in terms of the specific services they provide, some common ones include:

  • Hiring, training and terminating employees
  • Benefits management
  • Assessing performance
  • Payroll processing
  • Tax compliance
  • Risk management

These firms understand that each business is unique and there isn’t a one size fits all formula. Consequently, they are usually willing to work with you and determine the best approach for your company.

 

Benefits of this Work Arrangement

By outsourcing a portion of responsibilities, it gives you more time to focus on the overarching vision of your company. You won’t be bogged down with as many redundant or time-consuming tasks, so you can concentrate on your natural strengths to grow your business. This should lead to increased productivity and less stress.

You can also minimize your amount of risk dramatically. Because a PEO will have an in depth knowledge of laws and regulations, as well as the inner workings of the EEOC and OSHA, this can greatly reduce your odds of getting hit with fines or lawsuits.

Finally, you can expect to see higher profitability over time. With many tasks that were formerly arduous becoming streamlined, you can improve performance across the board. Better quality goods or services combined with talented employees and regulatory compliance is a realistic way to increase your profits.

Although making the transition to co-employment takes time, it’s usually well worth the effort when you look at the big picture. While it’s not for everybody, you should definitely take it into consideration if your business isn’t currently operating with the level of efficiency you’re looking for.