Frequently Asked Questions Regarding Company Payroll
1) What is the minimum wage?
The current federal minimum wage is $7.25 per hour. Some States have different minimum wages, not only for a base minimum wage but certain counties or worker classifications may have specific wage rates which must be paid in certain states. You should always verify with the State’s Department of Labor Wage and Hour Division on their requirements. The US Department of Labor usually keeps an updated list each year on the minimum wage rates by State.
2) Do I have to pay overtime?
Yes. Other than exempt employees, any hours worked over 40 in one work week must be paid at time and one half. Some exceptions do apply but overall if your employees work over 40 hours in a work week, overtime must be paid.
3) When do my payroll taxes need to be deposited?
If you are a monthly depositor, you will accumulate and hold taxes for a calendar month, then submit the taxes for that month by the 15th of the following month. If you are a semi-weekly schedule depositor, you will need to follow the following schedule:
- Pay dates on Saturday through Tuesday, taxes must be deposited on that current Friday.
- Pay dates on Wednesday through Friday, taxes must be deposited on the following Wednesday.
4) How do I pay my payroll taxes?
The IRS requires employment taxes to be paid electronically through EFTPS (Electronic Federal Tax Payment System), although you can set-up a wire transfer situation with your financial institution but fees generally apply. To register for EFTPS, please go to their website, www.eftps.gov and enroll. It takes approximately 5 business days to receive your four digit PIN (personal identification number) by mail. You must have this number in order to pay your taxes electronically through the EFTPS internet system. In order for your taxes to be paid timely you must submit your payment information by 8pm ET a day prior to your due date. Please go to the EFTPS website for specific rules and regulations.
5) How do I determine what kind of depositor I am?
As a business owner, it is your responsibility to make sure your taxes are paid on time. Even if you have a third party processing your payroll, the IRS leaves the burden with the owner. The IRS uses what they call a “Lookback Period” to determine the depository schedule of a business. The lookback period runs from July 1st through June 30th. Starting at July 1st from the previous year to June 30th of the current year. If more than $50,000 has been reported within the lookback period then you will be a semi-weekly depositor. If deposits reported have been under $50,000, you are monthly depositor. Please see section 11 of Publication 15 of the Circular E from the IRS for more details on depositing taxes.
6) Why is a bonus taxed differently?
A bonus is defined by the IRS to be a “Supplemental Wage”, therefore it is taxed differently then regular wages. If a bonus is separated from your regular wages, two forms of federal withholding methods can be used. Please view IRS Publication 15, Circular E, under subheading Supplemental Wages. You can go directly to the IRS website, www.irs.gov, the view the examples and explanation on how to tax a bonus.
7) If I have employees that work from their homes in another state, do I have to open a withholding and unemployment account in that state?
In most cases, yes. If an employee’s services are localized in one state, which is different than the state in which the main office or base of operations is located, then typically a combined registration must be filed for that other state in which employees are solely working in. Every state has different laws so it is recommended that you file the registration forms and applications to open withholding and unemployment accounts. Each state will review the forms and should you not have to open an account that state will notify you.
8) Is it OK to pay my federal taxes a couple of days late?
No. The IRS has penalties and interest that accrue on the amount of taxes due. It is important to pay your taxes timely. Penalties and interest can be anywhere from 5-25%.
9) Can I hire someone who is just working for me and pay them as a subcontractor?
In most cases, no. If you hire someone who does not have their own business, tax identification number and certificate of insurance to cover the work they are performing in the event of damages, etc…then they generally are not considered to be a valid subcontractor but an employee. In addition, if they are solely working for you and no one else, generally their status would be of an employee and not a subcontractor. There is a form called an SS-8 which will help you determine if you have an employee your not sure if they are an employee or subcontractor. You can fill out this form and send it to the IRS for determination. If determined to be an employee you would be required to withhold and pay taxes.
10) What paperwork do I need when I hire someone?
- Federal Forms: I-9 and W-4
- State Forms: New Hire Registry and Withholding Tax form.
Each state has a specific form for withholding, you can usually go the that state’s Department of Revenue website to download printable forms to give your employees.
11) Is it more beneficial to have a payroll service than to process my own payroll?
Yes. Due to federal and state tax laws and penalties accruing rapidly, it is more beneficial to have a service take that responsibility and stress away from a business. Outsourcing allows business to concentrate on their own business and not have to worry about all the rules, regulations and deadlines associated with payroll.