Avoiding the 3 Most Common Pitfalls of Payroll

Guardado en: Michigan Business, Tax News

Payroll is a crucial aspect of running any business, no matter if you have one employee or 100. Proper handling of payroll ensures that you get and keep quality personnel. It can also save you from unnecessary, hefty expenses and fines. After all, it costs much more to hire new employees than to keep existing ones – even with bonuses, raises, and other perks. There are also stiff penalties for improper collection, handling, and filing of payroll taxes. The IRS is continually exerting every effort to collect their due, with particular focus on collecting the proper employment taxes. The Employment Tax Research Project (ETRP) launched in 2010 is reviewing a sample of 6,000 businesses, with identified areas that will be subject to focused audits.

 

Set Up Your Payroll System Properly

 

To avoid headaches later on, it is crucial to plan and execute a solid payroll system at the get go. Decide on a pay schedule, keeping in mind that different states can have different requirements on this. In Michigan, employees must be paid at least once a month. This can be done more frequently, such as twice a month or every week. If your employees will be paid twice a month, wages for the first half of the month must be paid by the first day of the following month. Wages for the second half of the month must be paid by the 15th of the following month. For more frequent pay schedules, wages must be paid within two weeks after the end of the work period.

 

The amount paid to each employee should, of course, be up to fair labor standards. You can use a paycheck calculator to determine the gross, net, and all deductions. The type of payment should also be considered. In Michigan, this should be either in cash, check (without fees or deductions upon cashing), direct deposit to employees’ account (with written consent from employee), debit card, payrolls card, or paycard.

 

Separation pay must be paid according to the same schedule mentioned above regardless of the manner of separation, except for workers engaged in hand harvesting whom must be paid within one working day.

 

Do the Paperwork

 

There is also, of course, the paperwork. You need to get an Employer Identification Number (EIN) even before hiring any employees. Once you do, have them fill up and submit to you their Federal Income Tax Withholding Form (W-4). In Michigan, W-4 forms need to be reported within 20 days of hiring, rehiring, or return to work to the New Hire Operations Center in Lansing, MI. W-2 forms and previously filed tax forms need to be kept in order. Michigan business owners are also required to furnish each employee with a pay stub listing the hours worked (unless executive, administrative or professional), gross wages, pay period, and itemized deductions. These records need to be kept for at least three years after the employee leaves your business.

 
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The difference between employees and contractors may seem trivial, but this affects your taxes a lot. This difference can therefore lead to even more stiff fines and legal liabilities.

 

Mind the Taxes

 

You are legally responsible for determining, withholding, reporting, and paying for the withholding tax of all your employees. This applies even if you hire someone else to handle payroll, so be careful whom you choose. Late payments or incorrect amounts will lead to interest and penalties. To illustrate this point, about 40% of small businesses pay an average of $845 a year in penalties. Official expenses, allowances, use of company assets and others may also be subject to tax. There are certain IRS forms that need to be filled up, submitted and filed on a regular basis.

 

The Federal Insurance Contributions Act (FICA) also requires you to withhold a certain rate from your employees’ pay for Social Security and Medicare. State Unemployment Insurance (SUI) also needs to be reported by the 25th day of the month following the end of each quarter. For Michigan, the wage base is $9500, with rates ranging from 0.06% to 10.3%. There are payroll tax calculators that you can use to compute how much to withhold for each required deduction.

 

 How Hazzouri Accounting and Tax Services Can Help

 

As you can see, handling your business’s payroll properly is very important. Yet, it is not surprising that many aspiring entrepreneurs simply don’t realize what this entails. It often seems like yet another role a small business owner needs to fill, among many others. We at Hazzouri Accounting offer you our professional help. We believe that our relationship with the local communities of Canton, MI and the surrounding areas take top priority, and easing their burdens in making a living is our calling. Contact us today at 734-844-1614  for any questions or fill out our contact form and one of our friendly staff will call you.

 

We are also available through our social media accounts:  Facebook fan page / Twitter Feed / Google+ Account

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September 12th, 2014

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