There are several different types of expenses when it comes to payroll; some of these are required while others are optional. In almost all cases, you’ll need to pay taxes, as well as make contributions towards programs such as FICA, FUTA, and SUTA.
However, there are other things where you have a bit more room to weigh your options, such as healthcare and workers comp – although certain states have different laws regarding these components. Let’s talk about five payroll related expenses every small business owner is likely to deal with.
Employee Wages and Salaries
The most obvious expense is going to be the paychecks made to your employees. You’ll have employees that are paid either salaried, hourly, or a mixture of both. Salaried employees are paid a fixed amount per year, whereas hourly employees are paid based on the amount of hours they work – which can result in overtime based on your state’s laws. Your state will also have minimum wage laws which you must abide by, except in certain situations where the position is eligible to be paid less than minimum wage.
Federal Insurance Contributions Act (FICA)
We briefly mentioned FICA above, but for those who aren’t familiar, this deals with the remittance of both employer and employee contributions related to Social Security and Medicare taxes. Currently, these rates are 6.2% for Social Security, and 1.45% for Medicare. These rates are the same for both the employee and the employer, but they are subject to change year to year.
Federal Unemployment Income Tax (FUTA)
This is another type of tax per employee similar to FICA, except this is only paid by the employer – not the employees. FUTA affects you so long as you’ve paid at least $1,500 in employee wages during any quarter. Employers are able to take a credit of 5.4% at the most, out of the 6% rate imposed by the IRS – meaning those who qualify for the maximum credit will only pay 0.6% to FUTA.
Federal Income Tax
Your employees will have to pay federal income tax, but as an employer, you are responsible to pay this to the government. The exception would be if you hire an independent contractor, whom would then be responsible for their own income taxes – although you may be required to send them a 1099 form. Federal income tax is based off of the gross earnings of your employee, as well as what they listed for withholdings on their W-4 form. One other thing to note is that certain states like Alaska and South Dakota do not require federal income tax to be paid.
State Income Tax
Just like federal taxes, businesses are also responsible for withholding state taxes. All employers must register for a state withholding account number, which is used to actually pay the taxes. Unlike federal taxes, there are no states that do not require state level taxes to be paid.
How TRAXPayroll Can Help
It is important to take into account all of the different expenses and taxes related to your company’s payroll operations. For those who want to learn more about how TRAXPayroll can assist you in your payroll needs, feel free to contact us today.