Frequently Asked Questions 


Our FAQs are growing daily to help you answer general business and specific payroll questions.

Click on a Category to go to that section.
Current Customer Payroll Software Questions Salon & Spa Industry
Independent Contractors Taxes – All
Minimum Wage Taxes – Employment Taxes
New Hires Taxes – Payroll Taxes
Payroll-All Taxes – Tax Credits
Payroll-Reporting and Recordkeeping Time and Attendance
Payroll-Unclaimed Checks Worker Classification

Current Customer Payroll Software Questions

Can I pay my employees multiple rates?

Absolutely, you can pay employees multiple rates. There are a couple of ways that you can do paying an employee multiple rates. If this is a one-time extra adjustment, you can simply add that information to the pay grid.

  1. When you are entering payroll change the view from SUMMARY to DETAIL (drop-down menu on the upper right side of the pay grid).
  2. Select the employee necessary employee.
  3. Click ADD and choose the desired earnings code for the additional rate. (Note: You can use the same earnings code multiple times).
  4. Enter the hours and rate.
  5. Click SAVE.
  6. You can then change your view from DETAIL back to SUMMARY if you so choose.

If this is a recurring additional rate then it needs to be added at an extra rate to the employee(s) profile.

  1. Click EMPLOYEES on the left-hand side of the screen.
  2. Double click on the necessary employee to get access to their personal information.
  3. Click PAY on the left-hand menu bar.
  4. On the right-hand side of the screen click ADD.
  5. Enter the rate.
  6. All other fields are informational and do not need to be completed unless necessary.
  7. Click SAVE.

Go to the employer login page.

If you have any questions about employees multiple rates of pay, please contact us at 972-353-0000.

How do I set up a child support deduction or garnishment?

Setting up a child support deduction or garnishment is a 2-part process. 

Part 1:

  1. Click the EMPLOYEES tile on the left-hand side of the screen.
  2. Double click on the necessary employee to access their personal information.
  3. Click CHILD SUPPORT on the left-hand menu bar. Click the ADD button and enter the new information (Priority, case #, state origin, and agency) and click SAVE (floppy disk icon).
  4. NOTE: if the agency that you need is not available, please contact us and we can add it.

Part 2:

  1. Click on SCHEDULED E/D’s on the left-hand menu bar.
  2. Click the ADD button and select the appropriate garnishment or child support code.
  3. In the SEND TO field, select AGENCY.
  4. This will activate a sub-menu for you to select the agency name and the case number.
  5. Once this information has been populated, click SAVE.

If you have any questions on how to set up a child support deduction or garnishment, please give us a call at 972-353-0000.

How do my employees get copies of check stubs and/or W-2s?

Through the employee portal can the employee get copies of check stubs and W-2s. Employees for GetPayroll clients can gain access to their check stubs and/or W2s by going to www.getpayroll.com and clicking on the EMPLOYEE PORTAL button in the upper right-hand corner of the website. Your employee will click on the NEW USER REGISTRATION to create his/her own username and password. S/he will also be prompted for other information so to verify his/her identity.

NOTE: GetPayroll will not release any personal information to an individual employee. We will only communicate with the authorized payroll contact.

How do I add a second check for an employee?

Follow these steps to add a second check for an employee.

  1. When you are entering payroll, change the view from SUMMARY to DETAIL (drop-down menu on the upper right side of the pay grid).
  2. Click CREATE NEW CHECK.
  3. Determine the CHECK TYPE.
  4. Select the employee(s) that will be receiving a second check.
  5. Click CREATE CHECK(S) FOR SELECTED EE’s.
  6. Click the employee drop down menu and you should see the selected employee(s) listed multiple times.
  7. Enter and SAVE your data as needed.

How do I setup payroll reminders?

Setting up payroll reminders is easy.

  1. In the Dashboard, click AGENDA. This will open the integrated calendar.
  2. Click the plus (+) icon and add your reminder(s) as needed. These reminders will display in the AGENDA section of your Dashboard and will also display a pop-up as your deadline approaches.

If you have any questions, please give us a call at 972-353-0000. We’ll be glad to help.

How do I add direct deposit and/or an additional direct deposit?

To add direct deposit for GetPayroll clients is a 2-part process.

Part 1: Click the EMPLOYEES tile on the left-hand side of the screen.

  1. Double click on the necessary employee to access their personal information.
  2. Click DIRECT DEPOSIT in the left-hand menu bar.
  3. Click the ADD button and enter the new information (ABA #, Account #, Account Type).
  4. Click SAVE (floppy disk icon).

Part 2: Click on SCHEDULED E/Ds on the left-hand menu bar.

  1. Click the ADD button and select the appropriate code (if this is for the entire net dollar, select DIRECT DEPOSIT – NET).
  2. In the SEND TO field, select DIRECT DEPOSIT.
  3. This will activate a sub-menu for you to select the right account #.
  4. Once this information has been populated, click SAVE.

What do I do if I forget my password?

Forget your password? No problem! For GetPayroll clients, click here to go to the login page and click the “I forgot my password” link.

What device can I run payroll on?

You can access the GetPayroll services payroll dashboard from any device: your computer, smartphone, or tablet. If you choose to view your payroll dashboard on your smartphone, you should choose “Use Full Website” to have access to all features. For optimal viewing, we suggest your computer or large screen tablet.

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Independent Contractors

What is the difference between an independent contractor and an employee?

A great question – What is the difference between an independent contractor and an employee? In the last few decades, the numbers of independent contractors have mushroomed.  The reason in many cases is to force workers to pay for an “opportunity to work” rather than paying wages and overtime, like a worker who purchases a “contract” to clean a building, or a taxi driver who rents a cab for a twelve-hour shift.  There is very little difference in the work done between these independent contractors and full-time employees doing the same job. But the independent contractor (IC) label keeps workers from getting the protection of the labor laws at the Federal and State level as well as denying them the right to organize into a labor union.

Advantages of hiring IC over employees.

  • There is reduced overhead costs in using independent contracts.  
  • Reduced payroll taxes and the expenses of paying and accounting for such payroll.  
  • No benefits for independent contacts means no health insurance, no vacation, no jury duty, no time off with pay.
  • The independent contractor works when the employer wants him to.  There is full flexibility about when they work with no overtime pay and no pay for down times.
  • You can get very experienced and well-trained contractors.

Disadvantages of hiring IC over employees.   

  • No or limited employee loyalty. Loyal and dedicated employees tend to be very productive.  
  • Getting ICs to do extra work. Since they are technically self-employed, they will not be as willing to lend a hand in running your business as an employee will.
  • ICs may set their own schedules because of other contracts they are fulfilling at the same time.

Disadvantages to hiring employees.

  • You now have a person who is depending on you to provide for them and their family.  You may be in an employment-at-will situation but employment generally means permanency or long-term employment.
  • If you lay off an employee, you’ll have unemployment costs which can be very expensive.  
  • You have extra overhead, facilities, taxes, benefits and the like.  
  • The employee that stays with you is going to expect supervision, growth, training and a maybe future path to a higher position.

As there are downsides to employees, there are downsides to independent contractors besides scheduling, as mentioned above.  Independent contractors are not, as we will discuss later, subject to your control. Their charges are subject to market variation and demand.  You may pay them $25.00 an hour this month and with changes in the market and demands on their time next month you may find their rate to be double.  

If you have misclassified a new hire as independent contractors and the IRS says they are really employees the taxes, penalties, and interest due can be devastating.  Remember that the IRS and the Department of Labor would prefer there be no independent contractors.

How does the IRS decide who is an employee and who is an IC?

In 1987, the IRS created a list of 20 factors they consider relevant after examining the case law.

The amount of weight given to each of the twenty factors depends on the job and the actual situation that the worker operates in.  The twenty items listed in the IRS Revenue Ruling 87- 41 include the following:

  1. Instructions: If the employer has the right to require the worker to comply with the employer’s instructions.
  2. Training: If the worker can be required to attend training as to how the work is done.
  3. Integration:  Are the services performed by the work integrated into the normal operations of the business.
  4. Personal Service:  Does the employer require that the worker perform the services or can the worker at their own behest substitute another person.
  5. Hiring, supervising, and paying:  If the employer hires, pays, and supervises assistants for the worker rather than the worker hiring, paying and supervising his or her own assistants. This is an indication of control.
  6. Continuing relationship:  That the employer and the worker maintain an ongoing and continuous relationship.
  7. Set hours of work: The worker has established regular hours for work set by the employer.
  8. Full time required:  The worker should work full time for the employer rather than be free to work for whomever they want to and whenever they want to.
  9. Work on the employer’s premises: The services performed by the worker are performed in facilities controlled by the employer.
  10. Sequence test: The worker performs tasks in the order that the employer specifics.
  11. Reporting: The worker must submit reports either verbally or in writing on a regular basis.
  12. Payment:  The work is paid by a time unit (Hour/day/week/etc.) as opposed to being paid by the job.
  13. Expenses:  If the employer pays the expenses for the worker it leans toward an employment status.
  14. Tools: Normally if the worker’s tools are provided this would indicate that the worker is an employee.
  15. Investment: If the worker has made a significant investment in the facilities where the work is performed it indicates that the worker may be an independent contractor.
  16. Profit or loss: A worker who is an employee does not normally make a profit or a loss in addition to his normal pay.
  17. One Employer: Normally a worker who performs the same service for multiple employers at the same time is indicative of an independent contractor.
  18. Generally Available:  If the worker makes his services available to the general public it is indicative of an independent contractor.
  19. Discharge: The ability of an employer to fire a worker leans toward the worker being an employee.
  20. Termination: A worker who can quit at any time indicates that the worker is an employee.

Employment conditions that play a role in new hire classification.

The IRS has identified three types of conditions could be used in determining the status of a worker as an independent contractor or an employee:

(1) Behavioral control;

(2) Financial control; and

(3) Relationship of the parties.

The IRS makes the point that in addition to the twenty common law tests there other factors that may be relevant to the status and that the weight allocated to each factor may vary based on the situation.  

In general, the following is true.  Individuals who offer the services they perform in the course of their profession to the general public are normally independent contractors.

Courts realize that highly skilled or highly educated workers don’t require the minute by minute supervision so day to day control over a worker in not necessarily helpful in determining status.  The courts are tending to focus on the worker’s ability to realize the profit or loss from their services particularly as shown by who pays expenses and who finances the business.

Will changing employees into independent contractors save on payroll taxes?

I just wrote a blog post about this question – Will changing employees into independent contractors save on payroll taxes? And also debunking some ideas about payroll. This was one of the topics I discuss. Read the entire blog post, but here’s my answer to that question.

  • The savings in using independent contractor are mostly illusionary. If you are not paying the Social Security and Medicare taxes, independent contractors have to pay them.
  • Independent contractors also have to handle their benefits on what you pay them. If you think you are saving money, you are in reality cheating the contractor.
  • You should be paying them all of the costs that you are making them pay for. There is no free lunch.

You are also forgoing the upside of hiring employees.

  • You don’t get to decide whether a worker is an employee or an independent contractor.
  • There are 20 common law rules for determining whether a worker is an independent contractor or not. See them here.
  • A preponderance of those 20 rules determines the outcome. The common law rules are the law.

In the end, if there is a dispute, the court will decide.

Learn more about W2s versus 1099s here.

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Minimum Wage

What does the term “minimum wages” mean?

Minimum wage is the lowest amount per hour you must pay an employee in the United States based on Federal Employment Law. Currently, the approved Federal amount is $7.25 per hour. Some states like New York, Vermont, Massachusetts, and California, for example, have a higher minimum wage. U.S. Department of Labor states, “Where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher rate.”

For instance, head on over to our blog post about the minimum wage to find out your minimum wage rate for your state and municipality.

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New Hires

Which forms do new hires complete and where are they sent?

All new hires are required to complete Form W-4 and I-9. Copies should be kept in your files, and you must have them for at least three years on all employees if audited.

New hire reporting has to go to the state on every newly hired employee.  It is required. Failure to do so could be very expensive.

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Payroll – All

Is payroll considered a part of human resources?

HR (human resources) is not technically a part of payroll. Payroll is the calculation of an employee’s pay. Issuing payment for work performed. Filing government reports and paying taxes.

HR is the company department charged with finding, screening, recruiting and training job applicants, and administering employee-benefit programs. A portion of the HR function impacts an employee’s payroll, but much does not.

HR and payroll may fall under the same department in some companies and different departments in other companies. Sometimes payroll is viewed as an accounting function under the controller while HR is under a VP of HR

How do I handle an employee involuntary garnishment or levy?

Every involuntary garnishment will come with a court order.  That order should have full and complete instructions on:

  • who the order applies to,
  • how much to garnish from their wages,
  • where to send the money,
  • when to begin the garnishment, and possibly
  • when to stop the garnishment (but not normally).

You have to know the rules on maximum garnishments and whether the employee has multiple garnishments and how to prioritize them. Please contact us with questions at info@getpayroll.com

Whose responsibility is it to report employee tip income?

All cash and non-cash employee tip income are subject to Federal income taxes. All cash tips received by an employee in any calendar month are subject to social security and Medicare taxes. They must be reported to the employer unless the tips received by the employee during a single calendar month while working for the employer total less than $20. Cash tips include tips received from customers, charged tips (e.g., credit and debit card charges) distributed to the employee by his or her employer, and tips received from other employees under any tip-sharing arrangement.

Employee Responsibilities

Employees who receive tips must do three things:

  1. Keep a daily tip record.
  2. Report tips to the employer, unless less than $20.
  3. Report all tips on an individual income tax return.

When Employees Should Report Tips to The Employer

After the month the tips are received, employees must report tips to the employer by the 10th of that month. For example, tips received by an employee in August 2014 are required to be reported by the employee to the employer on or before September 10, 2014. If the 10th falls on a Saturday, Sunday, or legal holiday, an employee may give the report to the employer by the next day that is not a Saturday, Sunday, or legal holiday. An employer may require employees to report tips more than once a month. However, the statement cannot cover a period of more than 1 calendar month.

An employer’s or employee’s characterization of a payment as a “tip” is not the last word. Distributed service charges (often referred to as “auto-gratuities” by service industries) should be recorded as non-tip wages. Revenue Ruling 2012-18 lists the factors to determine whether such payments are tips or service charges.

Employer Responsibilities

The employer has several responsibilities regarding tips including recordkeeping, reporting, collecting taxes on tips, filling and filing forms as well as depositing taxes.

Employers must -retain employee created tip reports, withhold federal income tax and the employee share of FICA and Medicare taxes based on wages paid and tips reported to the employer.  The employer reports this information and deposits taxes along with all other employment tax obligations the employer has. Employers must calculate and pay the employer portion of FICA and Medicare taxes as well.  This is calculated on the total wages paid and the tips reported to the employer by tipped employees.

Tip income reported to the employer by the employee are to be included in Box 1 (Wages, tips, other compensation), Box 5 (Medicare wages and tips), and Box 7 (Social security tips) of the employee’s Form W-2. Enter the amount of any uncollected social security tax and Medicare tax in Box 12 of Form W-2. For more information, see the General Instructions for Forms W-2 and W-3.

Employers report FIT, FICA and  Medicare taxes withheld from employees’ wages and the employer calculated portion of FICA and Medicare taxes on Form 941, Employer’s Quarterly Federal Tax Return.  The taxes are deposited according to current federal tax deposit requirement for the employer.

Employers are also required to file  Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, and depositing the calculated taxes as well.  The employee pays no FUTA tax, it is levied only on the employer.  More in a later chapter on FIT, FICA, Medicare and FUTA taxes.

What can happen if an employee doesn’t report tips?

Report tips: When employees do not report some of their tips to their employer, the employer is not liable for the employer share of social security and Medicare taxes on the unreported tips. That is until the IRS sends a notice to the employer with demand for the taxes. The employer is not liable to withhold and pay the employee share of social security and Medicare taxes on the unreported tips.

For more information on the Section 3121(q) Notice and Demand, see Revenue Ruling 2012-18, which sets forth guidance on social security and Medicare taxes on tips.

What is a payroll deduction?

A payroll deduction is a reduction in the employee’s net pay. It typically includes income tax, national insurance or social security contributions. It may also include group insurance or pension fund contributions, union or association dues, authorized wage assignments, garnishments, etc. Please email our payroll processing specialists with any additional questions at info@getpayroll.com.

What do I do with unclaimed paychecks?

According to state abandoned property laws, unclaimed paychecks (wages) become a form of “abandoned property.” The employer (you) must pay the unclaimed wages over to the appropriate state treasury agency if they remain unclaimed for a certain number of months or years.

Escheat laws are state abandon property laws that govern abandoned property. The property “escheats” or reverts property to the state.

When you have an unclaimed check, there are certain steps you need to take. For instance, head on over to our blog post for details on what you need to do next.

When does an employees unclaimed wages become abandoned in my state?

Employees unclaimed wages become abandoned after a period of time. Each state has its own laws on this.

You can search Google with the phrase “Escheat Laws + [your state]”, or head over to our blog post for a list of when unclaimed wages become abandoned by state.

What do I legally have to do with unclaimed checks?

Unclaimed checks from past employees fall under state abandoned property law. The state abandoned property laws governing abandoned property are known as escheat laws because the property “escheats” or reverts property to the state.

Here’s what you need to do.

Step 1: Document every contact you made to the ex-employee.
Most states require employers to contact employees in an attempt to keep unclaimed wages from becoming abandoned property.

Step 2: File an annual report with your state.
States generally require the employer to file an annual report. The report includes each employee’s full name, last known address, amount and payment date of the unclaimed checks, and the date of the last contact with the employee.

Step 3: Send the unclaimed wages with the report.
With that report, the wages need to be sent to the State Treasury. The State Treasury will “hold on” to the money indefinitely for the individual. As an employer, your responsibility for paying those wages is over when you have submitted those funds and complete information to the state.

Some states put a minimum amount such as $50.00 and below in which the unclaimed wages DO NOT have to be reported or sent to the state. Check with your state on whether this rule applies to you. If, in fact, you don’t have to send it to the state it needs to be reported as income to the employer. It is also subject to federal income tax.

Head on over to our blog post to learn more and also see when unclaimed wages become abandoned in your state.

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Payroll – Reporting and Recordkeeping

What can happen if an employee doesn’t report tips?

Report tips: When employees do not report some of their tips to their employer, the employer is not liable for the employer share of social security and Medicare taxes on the unreported tips. That is until the IRS sends a notice to the employer with demand for the taxes. The employer is not liable to withhold and pay the employee share of social security and Medicare taxes on the unreported tips.

For more information on the Section 3121(q) Notice and Demand, see Revenue Ruling 2012-18, which sets forth guidance on social security and Medicare taxes on tips.

What do I do if my employee loses his W-2?

If your employee loses his W-2, provide a copy from your files. It can be a different copy than the Copy B he normally gets for filing with his Form 1040. They all have the same information. With GetPayroll, employees receive access to a lifetime portal to access their W-2s as well as all pay stubs. Schedule a quick demo to learn more about our payroll services

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Payroll – Unclaimed Checks

What do I do with unclaimed paychecks?

According to state abandoned property laws, unclaimed paychecks (wages) become a form of “abandoned property.” The employer (you) must pay the unclaimed wages over to the appropriate state treasury agency if they remain unclaimed for a certain number of months or years.

Escheat laws are state abandon property laws that govern abandoned property. The property “escheats” or reverts property to the state.

When you have an unclaimed check, there are certain steps you need to take. For instance, head on over to our blog post for details on what you need to do next.

When does an employees unclaimed wages become abandoned in my state?

Employees unclaimed wages become abandoned after a period of time. Each state has its own laws on this.

You can search Google with the phrase “Escheat Laws + [your state]”, or head over to our blog post for a list of when unclaimed wages become abandoned by state.

What do I legally have to do with unclaimed checks?

Unclaimed checks from past employees fall under state abandoned property law. The state abandoned property laws governing abandoned property are known as escheat laws because the property “escheats” or reverts property to the state.

Here’s what you need to do.

Step 1: Document every contact you made to the ex-employee.
Most states require employers to contact employees in an attempt to keep unclaimed wages from becoming abandoned property.

Step 2: File an annual report with your state.
States generally require the employer to file an annual report. The report includes each employee’s full name, last known address, amount and payment date of the unclaimed checks, and the date of the last contact with the employee.

Step 3: Send the unclaimed wages with the report.
With that report, the wages need to be sent to the State Treasury. The State Treasury will “hold on” to the money indefinitely for the individual. As an employer, your responsibility for paying those wages is over when you have submitted those funds and complete information to the state.

Some states put a minimum amount such as $50.00 and below in which the unclaimed wages DO NOT have to be reported or sent to the state. Check with your state on whether this rule applies to you. If, in fact, you don’t have to send it to the state it needs to be reported as income to the employer. It is also subject to federal income tax.

Head on over to our blog post to learn more and also see when unclaimed wages become abandoned in your state.

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Salon & Spa Industry

Who is responsible for employee income tip reporting?

Employee income tip reporting: In the beauty industry, everyone typically receives tips. All cash and non-cash employee tip income are subject to Federal income taxes. All cash tips received by an employee in any calendar month are subject to social security and Medicare taxes. They must be reported to the employer unless the tips received by the employee during a single calendar month while working for the employer total less than $20. Cash tips include tips received from customers, charged tips (e.g., credit and debit card charges) distributed to the employee by his or her employer, and tips received from other employees under any tip-sharing arrangement.

Employee Responsibilities

Employees who receive tips must do three things:

  1. Keep a daily tip record.
  2. Report tips to the employer, unless less than $20.
  3. Report all tips on an individual income tax return.

When Employees Should Report Tips to The Employer

After the month the tips are received, employees must report tips to the employer by the 10th of that month. For example, tips received by an employee in August 2014 are required to be reported by the employee to the employer on or before September 10, 2014. If the 10th falls on a Saturday, Sunday, or legal holiday, an employee may give the report to the employer by the next day that is not a Saturday, Sunday, or legal holiday. An employer may require employees to report tips more than once a month. However, the statement cannot cover a period of more than 1 calendar month.

An employer’s or employee’s characterization of a payment as a “tip” is not the last word. Distributed service charges (often referred to as “auto-gratuities” by service industries) should be recorded as non-tip wages. Revenue Ruling 2012-18 lists the factors to determine whether such payments are tips or service charges.

Employer Responsibilities

For employee income tip reporting, the employer has several responsibilities regarding tips including recordkeeping, reporting, collecting taxes on tips, filling and filing forms as well as depositing taxes.

Employers must -retain employee created tip reports, withhold federal income tax and the employee share of FICA and Medicare taxes based on wages paid and tips reported to the employer.  The employer reports this information and deposits taxes along with all other employment tax obligations the employer has. Employers must calculate and pay the employer portion of FICA and Medicare taxes as well.  This is calculated on the total wages paid and the tips reported to the employer by tipped employees.

Tip income reported to the employer by the employee are to be included in Box 1 (Wages, tips, other compensation), Box 5 (Medicare wages and tips), and Box 7 (Social security tips) of the employee’s Form W-2. Enter the amount of any uncollected social security tax and Medicare tax in Box 12 of Form W-2. For more information, see the General Instructions for Forms W-2 and W-3.

Employers report FIT, FICA and  Medicare taxes withheld from employees’ wages and the employer calculated portion of FICA and Medicare taxes on Form 941, Employer’s Quarterly Federal Tax Return.  The taxes are deposited according to current federal tax deposit requirement for the employer.

Employers are also required to file  Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, and depositing the calculated taxes as well.  The employee pays no FUTA tax, it is levied only on the employer.  More in a later chapter on FIT, FICA, Medicare and FUTA taxes.

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Taxes – All

If I own a small business, do I have to pay both corporate tax and income tax even though all my income comes from my small business?

You are not actually being taxed twice on the same income. You refer to corporate tax; if your business is a corporation, then the corporation is taxed on its earnings. But, the salary that is paid to you (and which is what you are taxed on) is a deduction. Salary is only taxed once.

If your business is an S-corporation, the corporation itself doesn’t pay tax; everything is passed through to your individual return. So, again, no double tax. If you didn’t mean to refer to “corporate tax”, and your business is a sole proprietorship or a single-member LLC, again everything just appears on your individual return — the business is not a separate taxpayer. (If the business were a partnership or multiple-member LLC, you probably would not have said: “I own a small business”, so I’m ignoring those. But there would be no double taxation, either. Assuming also that you would not elect to have an LLC taxed as a corporation — which you could do. If you did, the same treatment described above would apply.

There is one situation when there is double taxation. A corporate dividend is taxable to you but is not deductible by the corporation. So if you have a corporation (not a sub-S) and you receive a distribution as a dividend, the tax would be paid twice (but it is once by the corporation and once by you). That may not seem fair, but (i) you probably won’t be receiving dividends, and (ii) that’s the way dividends work for individuals in the US.

What tax forms should small business owners file for tax season?

There are many forms that a small business owner should file for tax season.

Schedule C, for example, is used for the typical single owner business (sole proprietorship).

If you have an LLC set up in your state, your filing status may be determined by state laws. For instance, in CA, single-member LLC’s can’t use Schedule C for a sole proprietorship. They must file as a C or S corporation.

If your state doesn’t dictate how you can file, LLC’s can choose their tax status. For single owners, you can choose a Schedule C sole proprietorship on your personal return, or you can be taxed as a C or S corporation. If there are two or more owners, you can choose between a Partnership or a C or S corporation.

Partnerships file on a Form 1065. C corporations file on a Form 1120. S corporations file on a Form 1120S.

Business returns are generally due by March 15th each year, unless you have a fiscal year end other than the calendar year. K-1’s are required to be issued to the owners from the business in a partnership or S corporation to report the income earned from the business. The K-1 is then reported on the owner’s personal return to pay taxes on the business income. C Corporations pay taxes directly on their returns, so no K-1 is necessary.

If you’re unsure about what to file, or what will be best for you and your business to choose as a business and tax entity, you should consult with a tax professional. 

How do I get my unemployment tax rates?

You have two unemployment tax rates – Federal and State.

Your Federal Unemployment Tax Rate is fixed.  That is to say, It changes infrequently. Learn more here.

Your State Unemployment Tax Rate is sent to you each year by every State in which you have a reported employee.  For example, if you have employees in Delaware and Pennsylvania, you’ll receive two unemployment tax rates. If you use a payroll provider (like GetPayroll!) be sure to send them your new rate each year. As a result, you will avoid penalty and fees for underpayment. If you are a GetPayroll client, we will email reminders to send us your new rate. Each State also has default employment tax rates for new employers and should let you know what that is when you register and get your State Unemployment Tax ID.

Learn more about our payroll services by scheduling a demo.

Are all tax-free benefits exempt from payroll taxes?

I just wrote a blog post that included this question – Are all tax-free benefits exempt from payroll taxes? Plus, I debunk some ideas about payroll. Tax-free benefits is one of the myths. Read the entire blog post, but here’s my answer to that myth.

  • Qualified benefits offered under a cafeteria or Section 125 plan are exempt from FICA.
  • Includes contributions made toward a medical, dental, vision and accident insurance plan and a flexible spending account, such as dependent care assistance and medical care reimbursements.
  • Payments toward health savings accounts and group-term life insurance of $50,000 or less, plus qualified transportation expenses and disability insurance, are exempt from FICA.

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Taxes – Employment Taxes

Can I pay employment taxes with my quarterly employer tax return?

I just wrote a blog post about this question – Can I pay employment taxes with my quarterly employer tax return? Plus, debunking some ideas about payroll. This is one of the myths. Read the entire blog post, but here’s my answer to this question.

  • FICA: If your total FICA tax liability does not exceed $2500.00, you can pay those taxes quarterly with your 941 filings.
  • 944 Filer: If you are a 944 filer and your liabilities, don’t exceed $2500.00 for the year you can make payment with your 944 filings.
  • Liabilities: If your liabilities exceed $2500.00 in any quarter, you become a monthly depositor with deposits due by the 15th of the following month.
  • Payroll Taxes: If your payroll taxes exceed $50,000 per year in the look-back period or ever exceed $100,000.00 in a period, then you become what is called a semi-weekly depositor and must deposit far more often.
  • Deposits: In any deposit period your liability exceeds $100,000.00, liabilities must be deposited the next business day.
  • See Circular E-Publication 15 from the IRS for exact details on these two paragraphs. They take several pages in the publication to cover the details.

Will incorporating relieve me of liability for unpaid employment taxes?

I just wrote a blog post about incorporating and if it will relieve a business owner of unpaid employment taxes. It included debunking some ideas about payroll. This was one of the myths. Read the entire blog post, but here’s my answer to this question.

The trust fund recovery penalty is only for the taxes that were withheld from the employee’s payroll. That portion of the employment taxes that the corporation is required to pay is dischargeable in bankruptcy of the corporation or LLC. You will not be held personally liable, period. Further, the trust fund recovery penalty is only for responsible parties as defined by the IRS and the courts.

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Taxes – Payroll Taxes

Are all tax-free benefits exempt from payroll taxes?

I just wrote a blog post that included this question – Are all tax-free benefits exempt from payroll taxes? Plus, I debunk some ideas about payroll. Tax-free benefits is one of the myths. Read the entire blog post, but here’s my answer to that myth.

  • Qualified benefits offered under a cafeteria or Section 125 plan are exempt from FICA.
  • Includes contributions made toward a medical, dental, vision and accident insurance plan and a flexible spending account, such as dependent care assistance and medical care reimbursements.
  • Payments toward health savings accounts and group-term life insurance of $50,000 or less, plus qualified transportation expenses and disability insurance, are exempt from FICA.

Are all tax-free benefits exempt from payroll taxes?

I just wrote a blog post about tax-free benefits and some other ideas about payroll. This was one of the myths. Read the entire blog post, but here’s my answer to that question.

Qualified benefits offered under a cafeteria or Section 125 plans are exempt from FICA. This includes contributions made toward a medical, dental, vision and accident insurance plan and a flexible spending account, such as dependent care assistance and medical care reimbursements. Payments toward health savings accounts and group-term life insurance of $50,000 or less, plus qualified transportation expenses and disability insurance, are exempt from FICA.

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Taxes – Tax Credits

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Time and Attendance

What are the exemptions from overtime rules?

There are a number of exemptions from overtime rules.  These include being a 20% owner or better and working in the business. Other exemptions which you can get details from us or the US Department of Labor include:

  • Executive Exemption
  • Administrative Exemption
  • Learned Professional Exemption
  • Creative Professional Exemption
  • Teachers
  • Practice of Law or Medicine
  • Highly Compensated Employees
  • Computer Employee Exemption
  • Outside Sales Exemption

What is the easiest way to track time and attendance?

The easiest way to track employee time and attendance is by using a time clock.  A biometric time clock is always the best option. For instance, it will eliminate buddy punches. Companies using time sheets may be overpaying by an average of 10%. With the addition of a time clock, for example, you will save time and money. Learn more about time clock services here

How do I get my employees to fill out their timesheet correctly?

Supervision is key to get employees to fill out their timesheet correctly. If the employee can’t or won’t fill out a timesheet correctly the supervisor will have to have the employee come to you each time so you can check and approve it.

A time clock is a way around this. The employee punches in and out or they don’t get paid. If they don’t punch the time clock their supervisor is responsible for knowing the time they worked. If there is an employee who is abusing the system for their gain the only solution may be to terminate them for the documented cause.

GetPayroll now offers time clock services. Learn more about our time clock services here

Why should I use a time clock instead of timesheets?

There are several reasons why you should use a time clock instead of a time sheet. Improper time keeping accounts for 8% of all overpayment errors in payroll.

There are six common problems with traditional timesheets.

  1. Buddy Punching
  2. Incorrect Hours Documented
  3. Time Tweaking
  4. Jumbled Handwriting
  5. Unauthorized Overtime
  6. Untracked Arrivals, Breaks, and Departures

Using a time clock will benefit you, as the business owner:

Legal disputes over employee wages and hours are growing.
Paper timesheets can get lost or destroyed which means the employer is losing attendance records required by law. If an employee has contemporaneously created time records, and challenge the employer for overtime, they will win.

Easier time approval.
With an electronic system, timesheet approval is much simpler. No need to track down employees to rectify messy time sheets and you can access time record archives at any time.

Avoid overpayments.
Electronic timekeeping systems mean less error for both the employee and employer. Accurate time reporting and payment means less headache for businesses.

Download our infographic guide on time clocks and overpayments.

Learn about Access 1 Source, the vendor we recommend for physical and web-based time and attendance services.

 

 

What is buddy punching?

Buddy punching occurs when an employee asks another employee to “clock-in” for them. It is done through a time stamp clock or even handwriting on a time sheet. It most often occurs when an employee is running late and asks another employee to mark him on-time on the timesheet.

Most employees don’t realize that it’s a form of payroll fraud. It costs U.S. employers more than 373 million dollars annually (2017).

Be sure to add it to your employee manual so employees realize it is considered payroll fraud. Document what will happen if an employee is caught. For example, “An employee shall be subject to disciplinary action up to and including discharge.”

To avoid buddy punching, consider switching to a biometric time clock or individual key cards employees have to swipe to clock-in.

Learn about the time clock options GetPayroll offers.

Interested in creating an employee handbook/policy manual for your company (the answer should be yes!), enroll in our HR services for your Federal and State handbooks. Or, contact us to learn more at 972-353-0000, chat online, or schedule a call.

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Worker Classification

What is meant by an on payroll or off-payroll job?

An on-payroll job is one where the worker is an employee of the company for which they work. Taxes are withheld and paid into the government.

  • The company pays taxes on the worker both as contributions to Medicare, social security and unemployment taxes to pay a worker if he is fired without cause.
  • The worker is eligible for company benefits if offered by the company. In some states or localities, there may be mandated benefits available in addition to the Federally mandated benefits for employees. These may include overtime and unemployment benefits.

Off-payroll jobs mean you are not an employee. In all likelihood, the worker is an independent contractor. The worker is responsible for all of his taxes. No company benefits and no mandated benefits or protections that are available to employees or on-payroll job workers. However, there are some tax advantages available for workers in off-payroll jobs such as deducting commuting expenses and all business related expenses. Those deductions are not available to an employee.

How do I classify employees correctly?

To classify employees correctly can be a challenge. Employees are classified as either

  • exempt from overtime, and are normally paid salary, or
  • nonexempt, and are paid hourly with overtime for over 40 hours in a workweek. 

Classification can be difficult. There are also independent contractors and booth renters, which are not legally “employees.” If there is a disagreement between you and the IRS in how you classified a new hire, a court will decide how your employee will get classified.

Get our infographic to help you easily know the difference between an independent contractor and an employee.

What is the difference between an independent contractor and an employee?

A great question – What is the difference between an independent contractor and an employee? In the last few decades, the numbers of independent contractors have mushroomed.  The reason in many cases is to force workers to pay for an “opportunity to work” rather than paying wages and overtime, like a worker who purchases a “contract” to clean a building, or a taxi driver who rents a cab for a twelve-hour shift.  There is very little difference in the work done between these independent contractors and full-time employees doing the same job. But the independent contractor (IC) label keeps workers from getting the protection of the labor laws at the Federal and State level as well as denying them the right to organize into a labor union.

Advantages of hiring IC over employees.

  • There is reduced overhead costs in using independent contracts.  
  • Reduced payroll taxes and the expenses of paying and accounting for such payroll.  
  • No benefits for independent contacts means no health insurance, no vacation, no jury duty, no time off with pay.
  • The independent contractor works when the employer wants him to.  There is full flexibility about when they work with no overtime pay and no pay for down times.
  • You can get very experienced and well-trained contractors.

Disadvantages of hiring IC over employees.   

  • No or limited employee loyalty. Loyal and dedicated employees tend to be very productive.  
  • Getting ICs to do extra work. Since they are technically self-employed, they will not be as willing to lend a hand in running your business as an employee will.
  • ICs may set their own schedules because of other contracts they are fulfilling at the same time.

Disadvantages to hiring employees.

  • You now have a person who is depending on you to provide for them and their family.  You may be in an employment-at-will situation but employment generally means permanency or long-term employment.
  • If you lay off an employee, you’ll have unemployment costs which can be very expensive.  
  • You have extra overhead, facilities, taxes, benefits and the like.  
  • The employee that stays with you is going to expect supervision, growth, training and a maybe future path to a higher position.

As there are downsides to employees, there are downsides to independent contractors besides scheduling, as mentioned above.  Independent contractors are not, as we will discuss later, subject to your control. Their charges are subject to market variation and demand.  You may pay them $25.00 an hour this month and with changes in the market and demands on their time next month you may find their rate to be double.  

If you have misclassified a new hire as independent contractors and the IRS says they are really employees the taxes, penalties, and interest due can be devastating.  Remember that the IRS and the Department of Labor would prefer there be no independent contractors.

How does the IRS decide who is an employee and who is an IC?

In 1987, the IRS created a list of 20 factors they consider relevant after examining the case law.

The amount of weight given to each of the twenty factors depends on the job and the actual situation that the worker operates in.  The twenty items listed in the IRS Revenue Ruling 87- 41 include the following:

  1. Instructions: If the employer has the right to require the worker to comply with the employer’s instructions.
  2. Training: If the worker can be required to attend training as to how the work is done.
  3. Integration:  Are the services performed by the work integrated into the normal operations of the business.
  4. Personal Service:  Does the employer require that the worker perform the services or can the worker at their own behest substitute another person.
  5. Hiring, supervising, and paying:  If the employer hires, pays, and supervises assistants for the worker rather than the worker hiring, paying and supervising his or her own assistants. This is an indication of control.
  6. Continuing relationship:  That the employer and the worker maintain an ongoing and continuous relationship.
  7. Set hours of work: The worker has established regular hours for work set by the employer.
  8. Full time required:  The worker should work full time for the employer rather than be free to work for whomever they want to and whenever they want to.
  9. Work on the employer’s premises: The services performed by the worker are performed in facilities controlled by the employer.
  10. Sequence test: The worker performs tasks in the order that the employer specifics.
  11. Reporting: The worker must submit reports either verbally or in writing on a regular basis.
  12. Payment:  The work is paid by a time unit (Hour/day/week/etc.) as opposed to being paid by the job.
  13. Expenses:  If the employer pays the expenses for the worker it leans toward an employment status.
  14. Tools: Normally if the worker’s tools are provided this would indicate that the worker is an employee.
  15. Investment: If the worker has made a significant investment in the facilities where the work is performed it indicates that the worker may be an independent contractor.
  16. Profit or loss: A worker who is an employee does not normally make a profit or a loss in addition to his normal pay.
  17. One Employer: Normally a worker who performs the same service for multiple employers at the same time is indicative of an independent contractor.
  18. Generally Available:  If the worker makes his services available to the general public it is indicative of an independent contractor.
  19. Discharge: The ability of an employer to fire a worker leans toward the worker being an employee.
  20. Termination: A worker who can quit at any time indicates that the worker is an employee.

Employment conditions that play a role in new hire classification.

The IRS has identified three types of conditions could be used in determining the status of a worker as an independent contractor or an employee:

(1) Behavioral control;

(2) Financial control; and

(3) Relationship of the parties.

The IRS makes the point that in addition to the twenty common law tests there other factors that may be relevant to the status and that the weight allocated to each factor may vary based on the situation.  

In general, the following is true.  Individuals who offer the services they perform in the course of their profession to the general public are normally independent contractors.

Courts realize that highly skilled or highly educated workers don’t require the minute by minute supervision so day to day control over a worker in not necessarily helpful in determining status.  The courts are tending to focus on the worker’s ability to realize the profit or loss from their services particularly as shown by who pays expenses and who finances the business.

What can happen if I misclassify a nonexempt employee who should receive overtime?

If an employee is classified as nonexempt from overtime but actually should receive overtime, any overtime they have worked you must pay them and the associated taxes. The courts will enforce this.

It’s important to always keep clear records of hours worked by all employees. If you were paying overtime and they were really exempt you have a different problem.  You paid them overtime wages they were not due. Trying to get that back is going to be difficult internally with a very upset worker and may be impossible to enforce if the employee objects.

What is a Form W-2 and what do I do with it?

What is a Form W-2? That’s a more common question than you may think. The Form W-2 is the summation of all of an employees payroll data for the year.  It is sent with all other W-2s and a summary form called a W-3 to the Social Security Administration by January 31st of the following year.  It must also be supplied to the employee by the same date.

What could happen at tax time if there is an error on a W-2?

If you discover an error on a W-2 after the employee has filed their own Form 1040 they may be required to file an amended Federal Tax return. They may also have to file an amended State Tax Return. Errors have to be corrected.

Will changing employees into independent contractors save on payroll taxes?

I just wrote a blog post about this question – Will changing employees into independent contractors save on payroll taxes? And also debunking some ideas about payroll. This was one of the topics I discuss. Read the entire blog post, but here’s my answer to that question.

  • The savings in using independent contractor are mostly illusionary. If you are not paying the Social Security and Medicare taxes, independent contractors have to pay them.
  • Independent contractors also have to handle their benefits on what you pay them. If you think you are saving money, you are in reality cheating the contractor.
  • You should be paying them all of the costs that you are making them pay for. There is no free lunch.

You are also forgoing the upside of hiring employees.

  • You don’t get to decide whether a worker is an employee or an independent contractor.
  • There are 20 common law rules for determining whether a worker is an independent contractor or not. See them here.
  • A preponderance of those 20 rules determines the outcome. The common law rules are the law.

In the end, if there is a dispute, the court will decide.

Learn more about W2s versus 1099s here.

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