October 12, 2016
Once your business reaches the point of having at least one employee, you need to pay close attention to the details of payroll compliance—especially payroll taxes such as the withholding of federal and state income taxes and FICA (Federal Insurance Contributions Act) tax from employees’ wages. You also need to pay the employer share of FICA tax and federal and state unemployment taxes.
Payroll is an area of your business where it is essential to be proactive about remaining current and compliant. Doing so can save you a lot of pain by avoiding penalties for mistakes and late payments, so use these tips to ensure your payroll is as close to perfect as possible:
- Check your worker classifications. The misclassification of employees is a hot audit issue, so make sure that you have adequate documentation that any independent contractors used are not employees. If you are unclear about the IRS rules about worker classification check them here, or ask one of our payroll tax professionals.
- Keep meticulous payroll records. As an employer, you are required to maintain accurate payroll records (e.g., time sheets, expense accounts, copies of W-2s and I-9 forms) and have them available for IRS inspection. In general, you should keep payroll information for at least four years.
- Monitor payroll compliance and taxes. If you’re like many businesses owners, you may opt to use an outside payroll company to handle your payroll function. While this can be a beneficial and time-saving move, it doesn’t absolve you from your responsibility of ensuring that your business is accurately reporting payroll information and paying the appropriate taxes. Make sure that any third-party payroll company you use is reputable and competent, and monitor your tax account to make sure that funds are being deposited correctly and on time.
If you have questions about payroll compliance and taxes, please contact our firm for assistance.