Building a Team: Payroll Considerations for New Business Owners and Entrepreneurs | Larry Aiello | Skillshare

Building a Team: Payroll Considerations for New Business Owners and Entrepreneurs

Larry Aiello

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4 Lessons (21m)
    • 1. Building a Team: Payroll Considerations for New Business Owners and Entrepreneurs Intro

      1:34
    • 2. Setting up your Team

      6:17
    • 3. Payroll Taxes - Employer versus Employee Portion

      9:32
    • 4. Payroll Service Companies - When to Use One

      3:49

About This Class

If you are a small business owner, there are many considerations involved that you need to keep in mind if you plan on hiring employees. For many businesses, the way to grow it and to scale it can only be done by hiring qualified people or by working with competent and qualified independent contractors. But nothing can sink your business faster if you have the wrong team in place.

In my video course, we’ll look at the difference between

  • hiring employees versus independent contractors and
  • also look at the option of hiring temporary employees

And if you do decide to hire independent contractors there are some sites that you can utilize to find the people with the skills you need, some of them are even overseas at reduced rates.

We’ll also take a look at each of the payroll taxes involved and how much is the employer responsibility and how much is the employee’s portion.

And luckily we’ll also discuss the role of payroll service companies and when it makes sense to use one. They can help you with the administrative burden and staying in compliance when you are hiring employees.

So join me inside the course today, click on the link in the description to help you in getting your team set up properly and keep you in compliance so you can focus on your business and your customers.

Transcripts

1. Building a Team: Payroll Considerations for New Business Owners and Entrepreneurs Intro: Hi, This is Larry Aiello, an accountant with 30 years of experience. Thanks for stopping by this course. If you are a small business owner, there are many considerations involved that you need to keep in mind if you plan on hiring employees. For many businesses, the way to grow it and the scale it can only be done by hiring qualified people or by working with competent and qualified independent contractors. But nothing can stink your business quicker. If you have the wrong team in place in my video course will look at the difference between hiring employees versus independent contractors and also look at the option of hiring temporary employees. And if you do decide to hire independent contractors, there are some sites that you can utilize to find people with the skills you need. Some of them are even overseas at reduced rates. We'll also take a look at each of the payroll tax is involved, and how much is the employer responsibility and how much is the employee's portion and luckily will also discuss the role of payroll service companies. And when it makes 10 cents to use one, they can help you with the administrative burden and staying in compliance when you are hiring employees, so join me inside the course today. Click on the link in the description, help you and getting your team set up properly and keeping you in compliance so you can focus on your business and your customers. 2. Setting up your Team: good day and welcome back. Coming up with right team of people to help you with your business will be crucial in the success of your operation. Just like in sports, a great team can help you win with your business. But a lousy team, even if you have a great product, will set you up more than likely for failure. Florida is a right to work state, which means you can hire whoever you want, and you can terminate their services whenever you want. On the other side of the token, they can leave your employment for greener pastures whenever they want. Typical common courtesy calls for receiving a two week notice from the employee so you can start the hiring process for a replacement. But you want to make sure that you hire in an intelligent manner. It is time consuming and costly toe. Always be hiring people. It could be disruptive to your business operations. And if you have to terminate their services, they may be entitled to unemployment compensation, in which part of it will be paid by you. When you hire someone to do a task, they basically fall into one of two categories. They are either going to be an employee or they're going to be an independent contractor. The difference in classifications is huge when it comes to your responsibilities as a business owner. Why? Because when you hire an employee, you take on the administrative function of collecting and paying payroll taxes and all the forms that are associated with it. With independent contractor, there is a lot less burden on your part, although they usually charge more per hour or per job. In theory, you also do not have to worry about the insurance for the tasks that an independent contractor is performing as they should have their own insurance in place. Now let's look at distinguishing between independent contractors versus employees. This could be a fine line, but basically it comes down to how much control do you have over the work function being performed? Do you control when and where the work is being performed? The more control you have, the more likely that person should be classified as a W two employees. Do they have other clients? Is the work being performed on your premises, or can they do it elsewhere? Are you getting an invoice for the services rendered. Are they using your computer's tools and equipment, or do they have their own? Another option you may want to consider is using temporary employees. There are employment agencies that specialize in this. They will find you an employee toe, work on a temporary basis or project. You will need to pay them more per hour for the employees. But the agency will take care of the taxes and insurance and the administrative burdens, and you won't need to worry about benefits such as offering health insurance and retirement plan. It will give you the employer flexibility and that if you like the employees, you can offer them a permanent position with your team. If you don't like them, you can terminate their services. Another option you may want to consider is outsourcing or using virtual assistants or V A's . Along the lines of hiring independent contractors is the option of finding someone overseas or online to perform any task that you may need done for your business. This could be good for finding software developers, Web developers, bookkeepers, graphic designers, voiceover talent, etcetera. There are sites like up work dot com, freelancer dot com, fiber dot com where you can use someone from their platform. You can read their reviews and get an idea of their work. Or there are firms that will find you a virtual assistant in places like the Philippines or India that will work for you independently in a remote location. You will have a working relationship with them, and we'll set up a payment schedule and utilize a service like PayPal that pay them. The world is a lot smaller now with the technology we have in place, even as short as 10 years ago. So if you are going to hire your own employees, there will be a lot more tasks that will be part of your operations. As opposed to hiring independent contractors. You will have to put in a system for performance reviews and pay raises. You should document everything in an individual file for each employee. When you hire someone, have a list of job requirements and responsibilities for that individual. You should create an employee handbook. Make sure you follow all equal opportunity laws with regard to age, gender, nationality, etcetera. Familiarize yourself with what you can ask and what you can't ask during the interview process, drug test may need to be a part of your hiring process. You can require employees to pass a drug test prior to being hired, and you can perform drug testing during their purport their employment. There are rules and protocols that must be followed. You should consider whether background checks will be part of your hiring routine. There was a recent tragic case of a young woman here in Florida that passed away on vacation while she was celebrating a birthday in Costa Rica. One of the maintenance guys at the Airbnb facility where she was staying is accused of murdering her. Unfortunately, the accused, the accused had a checkered past where if they had done a background check on him, it would have come to light. Perhaps the story would have ended differently for her. Another consideration is whether or not you will be offering any type of benefits for your employees. If you have a certain number of employees, you will be required to offer some type of health insurance. Traditional 401 K retirement plan is costly for most small businesses, but there are other options. Once you reach that point in your business or that might become a possibility. Get with your accountant to discuss your option. Having a benefits package will make you more competitive and attractive to potential employees. And that will wrap it up for this lesson on putting together your team. And we will continue on in the next lesson. Thank you. 3. Payroll Taxes - Employer versus Employee Portion: good day. This is Larry I yellow and welcome back to another lesson in this lesson. We will go over some of the responsibilities that will fall on your shoulders for collecting and remitting payroll taxes. If you are going to have employees as part of your business, the good news is, and we will go over this. And another lesson is that there are third party payroll service companies that can handle this entire administrative burden for you. So let's take a walk down memory lane from a previous lesson, the one on setting up your team. If you recall, there are basically two types of team members that can help you with your business number one employees and number two independent contractors. The rest of this lesson will focus on the first type the employees. One of the nice things about using independent contractors is that it saves you a lot of administrative burden, but the rates that you will pay are typically more. A good rule of thumb is that it usually will be double the rate of an employee's rate of pay. So let's take a look at the type of taxes that you will be responsible for as reporting, collecting and and remitting to the appropriate government agencies. The first type is known as Social Security. This program pays retirement benefits to retirees, and it also pays disability benefits for those that qualify under certain scenarios. The current rate is 6.2% of gross wages for social Security. This also caps out at 132,900 for 2019 and usually goes up every year. If your employees makes 200,000 year, they will only be taxed on the 1st 132,900 Social Security is known as a shared tax. You will be paying for this for your employees, and your employees will also be paying this as well. So you need to be withholding the monies from the employees and remitting that to the federal government. So if you pay an employee 100,000 per year, 6200 of it will be from your pocket as your expense. The employees will also be dinged for 6200 and that will come from his pocket, so the amount that you will pay the government will equal $12,400.1 piece from you and one piece from your employees. The next tax is known as Medicare. The current rate for Medicare is 1.45% of wages. This tax has no cap. If your employee earns 200,000 year, you will continue to collect and pay Medicare tax on his or her behalf. On the whole 200,000 the total of these two turns out to be 7.65 percent. So you, the employer, are on the hook for 7.65% and the employees will pay their share of 7.65%. Combined. These two taxes are sometimes referred to as pica, which means Federal Insurance Contributions Act. Then the employees also needs to pay income taxes to the federal government and also to their state government. So you will be required to take money out of their paycheck and send that off to the federal government and their state government as well. Thes governments want to make sure that the employees is paying their taxes as they go along according to your pay schedule. Whether that is once a week, every two weeks, once a month, etcetera. But that is not your expense. That is the employees responsibility. But you are just acting as a middleman to make sure their taxes get paid. Justin Item of note. If you are doing business, there are some states that do not require state income taxes like Florida believe Nevada is a state tennis. See Wyoming, a couple of others to just keep that in mind as you are setting up your business. The next tax is federal unemployment tax, sometimes referred to as Futa. This starts out at 6% per year, up to the 1st $7000 in wages, but most employers will receive a credit up to 5.4%. Thus, the net rate will be 0.6% 6/10 of a percent per 1000 up to $7000. Thus, the tax on an individual employees will be about $42 a year. Buta. It is used to pay the state for unemployment insurance if they run out of funds. So if Michigan runs out of money in the State Unemployment Insurance bank account, they will get the funds from the federal government. The next tax is known as state unemployment tax in Florida. They have also started to call this a reemployment tax. Unemployment benefits are paid to your employees if they lose their job through no fault of their own, like if you were to lay someone off. Sometimes it is referred to as unemployment insurance because from an employee's perspective, this acts as an insurance policy in case they lose their job. The names are both interchangeable, but this is an employer tax. This is not like Social Security or Medicare, where the employees also picks up a portion of the cost. This cost is all on you, the employer. Every state has their own state unemployment tax rate. Florida It is 2.7% based on the 1st $7000 of wages and then depending on your history. Over time, this rate can change If you're constantly hiring and firing people. This is where you will see your costs increase. This is what is known as an experience rating. The rate can actually go down if you have a good experience rating, and there are relatively few claims against your company. In California, the rate starts at 3.4% contrast that with Delaware, which has always been a state that is favorable for business formation. They start out at a rate of 1.6%. Unemployment is paid for a period of time, usually up to six months, and they will pay it upto a maximum wage amount. If you have a computer programmer making 100,000 year and then you lay them off for a lack of work and they want to file unemployment, the most they will be able to receive right now in Florida is capped at $275 per week, upto a maximum of 23 weeks, almost six months. That turns out to be 63 25 for almost six months. So unemployment tax is not designed to replace wages is meant to act in a supplementary manner. Just an F. Y I. Some people get workers compensation confused with attacks, but that is an insurance policy and event that your employees gets injured on the job, so we won't be discussing that here. So here is a chart for a little review of what we just discussed, and it shows who is responsible for what in the supplemental material to this course. I will include a file that you could down, though, that will have this information. So with all these taxes that you have to report and pay to the various government, there are tax returns that need to be completed. Here is a summary of the tax returns that will need to be filed for each of these taxes. As you can see, this could be very burdensome and costly, and we'll take your focus away from your business. That's why Eric recommend utilizing a payroll service for these functions, or perhaps having an accounting or bookkeeping firm handled all of this for you again. I will include a file that you could download that will have this information for you as a reference if you like. And in addition to this, you need to provide a summarized wage statement at the end of the year to each of your employees called a W two and every single W two that you hand out that needs to get summarized on a W three form that gets filed with the federal government. Now, if you instead hire independent contractors, all of these taxes will become irrelevant. You won't need to worry about them. As you can see, it can be beneficial toe. Have someone classified as an independent contractor as opposed to an employee, but there are strict penalties and fines you can face if you fail to classify someone properly. In many cases, it will be obvious how someone should be classified. But in some circumstances it is not so clear cut. Get with your accountant to help you in this regard. However, for independent contractors, there is some reporting that you will be responsible for if you end up paying them more than $600 in a calendar year, you will need to send them a 10 99 form showing the amount that they earned and a Form 10 96 will get filed with the I. R. S. That shows the sum total of all your independent contractors so that will finish the discussion on payroll taxes, and we will continue onward to the next lesson. 4. Payroll Service Companies - When to Use One: good day or good evening. I want to welcome you back to another lesson. This one I will go over. Why using a payroll service to pay your employees is the biggest no brainer that you will encounter in your business. If you viewed the previous lesson on payroll taxes, you should already be convinced there was a lot of paperwork and administrative burdens and running your own payroll. You have to do everything in a timely manner when it comes to paying and reporting your payroll taxes for the amount of money you can potentially save by doing it yourself. It's not worth it. There are too many places where you can get tripped up. The payroll service companies have everything pretty much automated. All you do is send them the information regarding your employees and how much you owe them , and they will take care of the rest. You can data enter, call, fax or even have time clock information that sends that data to these services, and they will take care of paying your employees, and they will also file your payroll tax returns accurately and on time within 99.99% accuracy. They will pull the money from your account to pay your employees and to pay the payroll taxes. You just need to make sure the funds are in your business account when you run payroll. If you overdraw the account, they will lock you out of processing your payroll until you have the funds available. Some of these companies even offer add on services like workers compensation insurance, human resource functions, administering retirement plans for a one K etcetera. And if you are still not convinced, there is even another reason. The other reason is new hire reporting requirements. Back in the 19 nineties, during the Clinton administration, they implemented new hire reporting requirements. Whenever you hire a new employee, this was done to track down individuals that evade paying child support. Every time you bring on a new employee, there is information that needs to get reported to the state where you do business. However, your payroll service company can take care of the new hire reporting for you. They will transmit that information to the appropriate agency. When you bring on new employees, they will take care of that headache for you. That's another reason why you should utilize their services. So hopefully by now you are convinced. Here are a few companies that I will give you to consider. They're all good. I have used all four of these companies at one point or another in my career. They are a DP or automatic data processing. They are the leader in the space. They can handle any business scenario. If you grow your business to a multibillion dollar operation, they can handle it. They will probably be. However, the most costly of the choices paychecks is another option, along with QuickBooks payroll solution by into it. This will integrate nicely with the online version of QuickBooks. If that is what you are using for your accounting system. Here is one that I just started using, and I really like them for most of you taking this course, I think this one will do a good job for you at a reasonable price, and they are called on pay. They're based out of Atlanta, and they have a nice, easy to use very modern user interface. It will look like this when you log in and whenever I call them their customer support always answers the phone. I rarely go through an automated voice system, so that will finish off this lesson on utilizing a payroll service company. Let's head on over to the next lesson.