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As a small-business owner, you probably handle as much of the work as possible yourself to keep costs low. But as you reach the point where you need to hire additional help, you’ll need to understand how to hire correctly and how to avoid both unnecessary costs and unnecessary liability.
To help you make a smooth transition to being an employer, consider these bookkeeping matters you’ll need to attend to.
How Much Do Employees Cost?
When planning a budget for payroll, most new employers think in terms of the wage or salary being offered. But in actuality, an employer often must pay out more than that. You will likely have to pay FICA taxes, workers' compensation coverage and unemployment insurance costs.
In addition, in order to attract quality employees, you may need to offer benefits or cover licensing. Additionally, the hiring process may include things like background check fees or the purchase of additional equipment for the employee to use.
Should You Hire an Independent Contractor?
Because of the added costs and effort of having an employee, you may need to hire an independent contractor instead. A contractor covers his or her own taxes and doesn't receive benefits, so this type of worker is generally less expensive.
However, the IRS defines which types of workers must be classified as employees and which may be considered independent contractors. Generally, if the employer controls details such as how, when, where and with what materials a job is completed, that worker should be considered an employee.
Does It Really Matter How You Classify?
Because of fraud and confusion about the classification of workers, the IRS as well as other government agencies conduct audits to determine whether workers are misclassified. If the IRS comes to the conclusion that your contractors should be considered employees, the agency can levy fines and penalties as well as require repayment of back taxes. Other agencies may also be notified to investigate the matter.
In addition, many workers who are considered independent contractors do not fully understand the differences between the two and may be surprised to learn of the additional costs and liabilities they are responsible for. Using independent contractors can leave you with disgruntled workers in the long run.
Is There Any Way to Reduce Costs?
If your business is a sole proprietorship, you may be able to hire your own minor children at substantial tax savings. Such minors are often not subject to FICA taxes or unemployment taxes. Family businesses often find this method beneficial because it not only saves money but also integrates the business into the family.
If your needs are temporary, consider creating a project that you can outsource rather than a job that needs to be filled. By letting go of control and just focusing on the outcome, you may be able to create a role that an independent contractor can legitimately fill. Consult with your accountant when designing a project for an independent worker.
Keep the administrative costs of managing payroll low by opting for semi-monthly or bi-weekly payroll schedules rather than weekly payouts. Offering direct deposit saves a little money as well, and the lack of hassle makes employees happy. And, of course, hire carefully. Why? One of the biggest expenses many employers face is that of searching for and hiring new employees after someone leaves.
Should You Get Help With Payroll?
If you're a new employer, you probably shouldn't attempt to DIY your payroll activities. Because labor and payroll are subject to the oversight of numerous state and federal agencies as well as regulations and auditing, you increase liability by doing the job yourself.
Look for an experienced bookkeeping service to guide you through contacting the right governmental organizations, setting up accounts and completing the necessary paperwork to hire an employee. Eventually, you may be able to do these tasks in-house as you grow, but getting everything set up correctly will keep things from becoming an expensive burden now.
No matter what your concerns are when planning to hire an employee, the professionals at
Quality Bookkeeping Services Inc
.
can help. Make an appointment today.
