About 70% of business owners say that the various pay laws in states and cities make payroll very challenging.
You already have enough to be concerned with, and the time you have to spend on payroll doesn’t help matters. Most business owners spend about 5 hours a week on payroll. That’s time lost from growing the business.
Understanding how to pay employees in a small business is the best way to stay above board with labor and tax authorities.
Are you ready to find out the most important pay laws to know? Read on to find out what they are.
1. Classifying Your Employees
Both tax laws and state laws require that you properly classify your employees. That’s because you’re responsible for paying payroll taxes for each employee.
Large and small companies get accused of working around this law by classifying employees as independent contractors. Contractors are responsible for paying their own taxes.
The IRS has this notice to help you correctly classify your employees.
2. Distributing Pay Stubs
Do you have to distribute pay stubs to your employees? That depends on the laws in your state. Federal laws only say that you have to keep records of the number of hours an employee worked and how much they were paid.
There are states that require that you do have to give them printed copies of pay stubs. Other states require that the employees need to have electronic access to pay stubs.
It’s good practice to give out pay stubs because this gives you extra documentation to have for your records. The best way to do that is to use a pay stub generator and distribute the pay stubs to the employees.
3. Paying Payroll Taxes
One of the biggest responsibilities of having employees is paying payroll taxes. When you pay employees, you have to withhold money from their earnings for income, Social Security, and Medicare taxes.
The money you withhold goes right to the IRS. You have to match a portion of those withholdings for Social Security and Medicare contributions.
You withhold a flat percentage of earnings for Medicare and Social Security, 1.45% and 6.2% respectively. Employers have to match those funds. That’s what most employers think of when they hear payroll taxes because it’s money that employers have to pay themselves.
4. Minimum Wage Laws
Do you have employees that you pay at minimum wage? This is another law that is different between states. The federal minimum wage stands at $7.25 an hour, which hasn’t changed since 2009.
Each state and some cities have their own minimum wage laws. You have to check to see what they are in the laws of your state.
What if you have remote employees in a different state? The laws of your employee’s city and state are the laws you need to comply with.
Know the Pay Laws and Reduce Your Headaches
Hiring employees is supposed to help your business grow, but it’s hard when there are so many pay laws to know about.
It’s best to check out the laws in your city and state to make sure you are in compliance.
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