Payroll

M

mpriley02

I have two guys who I've been using as subs for the past couple years, only now, they're more like employees. I need to start paying them via payroll, but I know nothing about it. Yes, I know I need to talk to my accountant, but I thought I'd get some info from some of you guys first.

How much is this going to cost me? What are the major tax differences for a 1099 sub vs a regular employee? For someone who gets paid $20/hr, around how much more will I ultimately be paying for that hour (figuring in withholding, unemployment tax, etc.)?

Thanks
 
I think if they use your equipment or drive your equipment and or have to obey schedule you set then yes i would pay.A them as employees.As far as taxes you have to match there ss and medicare also have to pay unemployment tax.Roughly about 9 0r 10 percent.
 
Don't forget to factor in Workman's comp as well. I used to pay 19¢ to every dollar paid in gross payroll. I now pay 14¢ to every dollar!
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At my rate, I'm counting on paying about $550 extra per month for Workman's comp. (I pay monthly. I used to pay 8 months out of the year).
 
wow here we have state workers comp called Labor and Industry. Of course an employer can get a private provider. Here our rates are about $2.50 per hour worked per employee.... I guess paying biased on payroll would suck, seems like a trap for avoiding raises...
 
mpriley: I have been dealing w/ the same issue over the last two weeks. CrazyJimmy's right on. If your workers have to follow a set sched., Use mostly your equip., always work under your direct instruction ordrive your operate your equip. then the IRS considers them employees, and they should be paid as such. So to answer your questions, yes it's gonna cost you and them. No more 1099, you gotta start W-2's. Tons more time/effort/recordkeeping, in all $$$. You'll have to withhold for FICA, medicare, unemployment, pay workmans comp., etc. I spoke w/ my lawyer and acctant last week and they both suggested that if I make my guys employees then I have to start paying them less hourly, so I can pay the gov. for all of these other taxes. I think it looks like your guy making $20/hr, now is making $16/hr or less. Youre gonna need to get an EIN, and hire a Payroll Company. (I think paying a payroll company to keep track of it all would be cheaper than paying your CPA to do it.) Good Luck. Let me know what you decided, I'm interested on your perspective.
 
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Do what you already know is best...

Talk to your accountant.

No information is better than bad information.

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well said.





Regarding payroll as employees versus 1099 contractors, bear in mind that there are legal definitions of what constitutes each. The Man can come after you for back taxes and premiums.

Best of luck. Its not that bad with an accountant.
While wading through the sea of paperwork, I'd advise you write all the new information down as you get it. It can get muddled quickly. It will take more time, but the knowledge and records of the process can take away stress of confusion, etc, both now and later.
 
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seems like a trap for avoiding raises...

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My observation as well. It discourages employers to be generous to their personnel.

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I'm not sure if "trap" is the word that comes to my mind. If the insurer who sets the insurance rate (their revenue) were to benefit by the employer saving on wages, and all associated payroll taxes, then "trap" would seem more appropriate.

I'm no insurer, but if I saw that someone was getting paid more, I'd figure they had training, etc that made them better at their job, and more likely to be invested in keeping said job, therefore more inclined to be safe, therefore less likely that I'd have to pay out.

I don't really understand why the percentage system is common. Seems like experience factors are used in private insurance companies, as I believe Jamin recently posted that his rates went down. They are with WA State WC.

There are a lot of factors that determine rates, probably most of which we don't know, since we are not insurance folks. I bet most of them don't know either.

I do agree with Jamin's statement, and Evo's sentiment, that it discourages generosity. Further with that point is that less compensation means more employee turn over, hiring costs, training costs, reduced productivity, and a harder time for business owners, and employees, both.

The System...seems to be out against everyone.



I suspect that by and large, for every dollar of pay, an employer pays about 50 cents in payroll taxes and accounting, without providing medical, dental, retirement, vacation. Probably at least an additional 50 cents per dollar for all of that. Anyone concur or have a more informed idea than my guestamation?
 
I suspect that by and large, for every dollar of pay, an employer pays about 50 cents in payroll taxes and accounting, without providing medical, dental, retirement, vacation. Probably at least an additional 50 cents per dollar for all of that. Anyone concur or have a more informed idea than my guestamation?

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Southsound, not sure I understand the math in your statement above. It sounds like youre saying that for every dollar of pay, half is going to payroll, and the other half is going to benefits. So if your guy is getting paid $18/hr, then your paying the gov + benefits $18/hr on that guy plus his wage of $18/hr. That means the employee that is making $18/hr, is actually costing your company $36/hr to employ???? I guess that's how I'm reading what you said. Is that what you meant?
 
The reality is that while you the "employer" no longer incurs the payroll overburden the independent contractor (I.C.) does. That is, the costs don't evaporate. As a self-employed individual any expenses such as disability insurance, liability insurance, payroll deductions for such things as medicare and social security still need to be made. So, while you are paying the I.C. $20/hr they are in reality still making $16/hr or even less since they now have additional overhead. Yes, they can deduct expenses otherwise unavailable to an employee it still amounts to the same thing.

In most cases the I.C. needs to bear risk of profit and loss, be able to substitute others to perform the work, i.e., an "employee", be able to do the work without the use of the company's equipment and have other clients that generate income. Often the rule of thumb for that is no more than 70% of the revenue from one client.

If you truly want to treat your I.C.s properly then pay them more than you would an employee. No less than what you do with any "contractor" you hire to do work.
 
You might want to check out employee leasing as an option for your employees.
They are an all inclusive solution to payroll.
You can hire who you want through their system and report hours each week.
Compared to spending the time doing Payroll each week,
you keep accurate track of hours worked and turn in your weekly time sheet and they handle all parts of payroll ;FICA, medicare, unemployment, pay workmans comp., etc.
They work on a percentage on wages you pay out.
 
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I suspect that by and large, for every dollar of pay, an employer pays about 50 cents in payroll taxes and accounting, without providing medical, dental, retirement, vacation. Probably at least an additional 50 cents per dollar for all of that. Anyone concur or have a more informed idea than my guestamation?

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Southsound, not sure I understand the math in your statement above. It sounds like youre saying that for every dollar of pay, half is going to payroll, and the other half is going to benefits. So if your guy is getting paid $18/hr, then your paying the gov + benefits $18/hr on that guy plus his wage of $18/hr. That means the employee that is making $18/hr, is actually costing your company $36/hr to employ???? I guess that's how I'm reading what you said. Is that what you meant?

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Shreddy, let me revise that statement. I am looking at some taxes as percentages of payroll, e.g. a lot of people pay worker's comp as a % of payroll, so this is proportionate to payroll, social security is 7.5% of payroll, so again proportionate, unemployment tax is a percentage, as well.

However, accounting cost would be independent of payroll, for a lower wage employee, the cost of payroll, taxes, and other accounting, while fixed, equates to a larger percentage of payroll, whereas a high wage employee, the percentage would be lower.

medical/ dental would be fixed.
Paid vacation would be proportional to wage.
Unemployment insurance is wage proportionate.
Retirement depend on the company, as some match a percentage that the employee puts in to a retirement account.



I can't think of other employer paid payroll taxes off the top of my head.



Does this make sense?
 
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You might want to check out employee leasing as an option for your employees.
They are an all inclusive solution to payroll.
You can hire who you want through their system and report hours each week.
Compared to spending the time doing Payroll each week,
you keep accurate track of hours worked and turn in your weekly time sheet and they handle all parts of payroll ;FICA, medicare, unemployment, pay workmans comp., etc.
They work on a percentage on wages you pay out.

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Tim,

This sounds like a day-labor type arrangement through Manpower, LaborReady, etc.

Is this different that what you are suggesting?

I believe that day labor agencies have an agreement where the employer can't directly hire an employee for a specified period of time.

Please explain more.

Thanks.
 
So I emailed my accountant today...We'll see what she says. I'm hoping she can get me started, then depending on the cost, I can either have her keep doing it or use a payroll service.

Thanks for all the comments. I still need to look into WC. I know why I need it, etc., but in NC, its not mandated until you have 3 or more employees. I'll get payroll down first, then start in on WC.
 
It is a benefit to your employees and shows you have their interests at heart too. You'll come across as a better employer and attract better people.
 
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So I emailed my accountant today...We'll see what she says. I'm hoping she can get me started, then depending on the cost, I can either have her keep doing it or use a payroll service.

Thanks for all the comments. I still need to look into WC. I know why I need it, etc., but in NC, its not mandated until you have 3 or more employees. I'll get payroll down first, then start in on WC.

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It may not be mandated, but I bet you will be up sh*t creek if someone gets totally maimed on your job.

WC sucks. I pay .52 on the dollar. Robbery, but I sleep knowing if someone gets badly injured, I am covered. I am sure your clients will be happy you have it also.

If you go against getting comp, I am asking you why you would put them on as employees rather then subs? Id rather get hit by the IRS then having a guy get maimed for life with no WC.

This is tree work. You HAVE to be responsible and cover the guys working for you.
 
I would wager that if someone gets hurt and there's an investigation, the IRS could readily find that they are in fact an employee and you'd get hit from both ends. Unless it is clear that this person is running their own business and not effectively employed by you don't take the risk.
 
I did quickbooks payroll for a couple years, it makes it very easy, they have all the updated IRS rates and all. You still have to do your monthly/quarterly taxes, and you better not mess that up! Because of all that, I switched to a payroll service a year ago. We only have 7 employees, but they take care of all my monthly and quarterly taxes, end of year stuff, etc. Anyway, it is costing me $40 a week to have them do it all, I just email them everyone's hours on Monday, and their money is in their account on Tuesday. To me, that is money well spent, what a burden off my back.
 
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So I emailed my accountant today...We'll see what she says. I'm hoping she can get me started, then depending on the cost, I can either have her keep doing it or use a payroll service.

Thanks for all the comments. I still need to look into WC. I know why I need it, etc., but in NC, its not mandated until you have 3 or more employees. I'll get payroll down first, then start in on WC.

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It may not be mandated, but I bet you will be up sh*t creek if someone gets totally maimed on your job.

WC sucks. I pay .52 on the dollar. Robbery, but I sleep knowing if someone gets badly injured, I am covered. I am sure your clients will be happy you have it also.

If you go against getting comp, I am asking you why you would put them on as employees rather then subs? Id rather get hit by the IRS then having a guy get maimed for life with no WC.

This is tree work. You HAVE to be responsible and cover the guys working for you.

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Never heard about it being that high.

Is it a CA thing?

Have you shopped around a lot?

Seems like that would make it a major impediment to hiring employees, unless all of the area's services are operating legally, and having to incur that enormous "bending over".
 
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