Beyond the Paycheck: What Small Businesses Must Do
Payroll may seem to be all about the paycheck to most small business owners. After all, the function of payroll is to pay employees, isn’t it?
Well, yes. But payroll also encompasses compliance with Federal, state, and local requirements, including your company’s own taxes and reporting. Here’s what needs to be done beyond pay calculations and paycheck issuance:
1. Report Employee Withholdings
All income, taxes and withholding must be reported to the Federal government by employers by specific dates every quarter. This is reported on Form 941, Employer’s Quarterly Federal Tax Return.
2. File Your Company’s Payroll-Related Tax
Workers are not the only ones who pay payroll-related taxes. Your company also owes payroll-related taxes, separately from employee payments, as follows:
- FICA taxes. Employers pay FICA taxes in addition to those paid by their employees. You calculate and file these through Form 941, Employer’s Quarterly Federal Tax Return.
- Federal unemployment taxes. Employers are responsible for filing the employer’s annual Federal Unemployment Tax Act (FUTA) payment, which is used for unemployment compensation for unemployed workers. The tax is calculated and paid via Form 940.
SUTA taxes. Most states require employers to pay state unemployment taxes, to fund unemployment compensation. The rate and filing schedule is determined by the state in which you do business. Learn more about SUTA taxes here
3. Report New Hires
The Federal government requires employers to document any new hires they’ve made and report it to the National Directory of New Hires (NDNH). This is done so that parents can be found for missing child support and related custodial payments. Generally, this should be completed within 20 days of the hire, so it might be prudent to incorporate this process as part of employee onboarding.
Some states also require reports to be made to a State Directory of New Hires. Individual reporting times and requirements — as well as legal sanctions — vary by state, so be sure to check that you are in compliance.
4. Maintain Payroll Records
Payroll records need to be maintained to ensure accuracy and compliance with Federal, state, and local authorities. The IRS specifies that tax-related records need to be retained for four years. Some states or locales may require retention for a longer period. Check with the relevant authorities. Learn more about recordkeeping as a small business here.
Some states have wage theft laws on the books that require retention of payroll records for a certain amount of time as well. Wage theft refers to underpayment or nonpayment of wages and it has risen dramatically in recent decades.
Wage theft laws may require that an employer be able to provide records of wages, hours worked, and other relevant information to employees in writing if requested. Make sure your company is following any laws in your state related to wage theft legislation!
The following payroll-related records need to be kept:
- Employee’s name
- Address
- Occupation and job title
- Social Security number
- Date of hire
- When the employee’s work week began (day and hour)
- Hours worked by day and week
- Number of hours worked each day and week
- Wage basis
- Hourly rate of pay or weekly salary
- Any raises, rate and date raise effective
- Overtime earnings for each work week, if relevant
- Gross wages
- Net wages
- Allowances claimed
- Date of each paycheck and period that covered for each paycheck
- Taxes withheld
- Form W-4
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