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9 Replies Last post: Oct 16, 2007 11:13 PM by QuickBooksPro

Guidance on paying our first employee

Aug 9, 2007 3:11 PM

Housing Deals 8 posts since
Jul 20, 2007

We are about to take our family owned and operated business to the next level and hire our first employee. We currently manage all our finances (and don't leverage an accountant), and I'd prefer to also self-manage the payroll also. However, I'm very unfamilar with the various withholding and process that I need to follow. Any guidance on how to get started with the basics to make sure I'm following all the rules?

Tags: employee, hiring, payroll, withholdings Report as inappropriate

ScubaDive 36 posts since
Jul 22, 2007

1. Re: Guidance on paying our first employee Aug 9, 2007 3:56 PM

I've had a business in the past which had employees where I handed the payroll. I think the trick is to just make sure that you have the right numbers and set up a spreadsheet to automatically calculate the amounts for Social Security Employer and Employee (6.2%), and the Medicare Employer and Employee (1.45%). You also have some State tax stuff too.

I recommend spending an hour with an accountant to help you set up your spreadsheet or tax program, and then you can do it by yourself no problem. In the beginning there are advantages to doing it by hand, but you may also want to use something like the online payroll through Online Banking.

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Woodstock 5 posts since
Aug 13, 2007

2. Re: Guidance on paying our first employee Sep 5, 2007 12:53 PM

I use Bank of America's "easy online payroll," which makes it simple. The screens are very well-organized, they have excellent support, and they can handle the specifics of every state's (as well as Federal) tax withholding and filing. I'm not connected with them but can enthusiastically recommend the service. Especially if you use direct deposit it's inexpensive as well, I think about $15 a month.

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buybigtires 15 posts since
Oct 10, 2007

3. Re: Guidance on paying our first employee Oct 10, 2007 2:37 PM

Uggghh...not a fun task...though not as hard as you might think...

There are several things you need to consider now that you have an employee:

1. New IRS paperwork to consider

If you are not filing it already, now you must file a form 941 every quarter, detailing the withholding for that period.

You are now required to have on file (in the event of an audit) in a secure(locked) box or drawer: a W-4 and corresponding state equivalent, and an application, along with any other state requirements.

2. Who will handle your payroll, or will you be doing it yourself?

Payroll services are up to you, ones I have seen charge $32 per pay period to oversee this.
Your bank will have these services available in a do-it-yourself sort of manner.

3.W-2's or 1099's
You can file these yourself for $3.95 apiece at FileTaxes.com or have your payroll company do it.

4.Do you have to pay Workman's Comp, the Employment Security Commision, or any addt'l taxes and fees?
I think Workman's Comp only kicks in after 3 W-2 employees, check online for more details.

Miscellaneous:

http://yourmoneypage.com has tax table calculators that can help you with withholding, and http://www.dinkytown.net has a helpful net-to-gross calculator. Check them out.

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DallasPayroll 8 posts since
Oct 10, 2007

4. Re: Guidance on paying our first employee Oct 10, 2007 2:52 PM

If you don't understand payroll tax law both Federal and State, and depending on where you are located maybe even local, you would best be served by a payroll service. These services will process your payroll checks, make direct deposits, make payroll tax deposits, prepare and file all payroll tax reports and even process year end W2s, 1099s and federal year end reports.

There is a lot more to payroll than just calculating and writing payroll checks. You need to look into Social Security Number verification and new hires reporting.

These services can be relatively inexpensive for the amount of work they perform and for the piece of mind that they provide.

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Pioneered 3 posts since
Oct 12, 2007

5. Re: Guidance on paying our first employee Oct 12, 2007 10:06 AM

in response to: DallasPayroll

The good old first employee. I agree with Mr. ScubaDive setting up a good spreadsheet to automatically calculate your employee liabilities and so fourth is a great way to go. That's exactly what I did before I moved up to QuickBooks which seems to confuse me at times, but I always find my way. Another avenue would be to hire your first couple employees as independent contractors. This will rid you of the situation a totally, employee liabilities, payroll expenses would not exist.

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DallasPayroll 8 posts since
Oct 10, 2007

6. Re: Guidance on paying our first employee Oct 12, 2007 11:27 AM

in response to: Pioneered

NO, NO, NO. Do not hire your first employee as an independent contractor just to avoid paying payroll taxes and to simplify the payroll process. The IRS is very specific about the difference between an employee and an independent contractor. It is not the employer's option to just say this person is a contractor. If you try this and the IRS finds out, you will be liable for the payroll taxes that should have been withheld, the employers matching portion of those taxes and accrued penalties and interest. This can become very very expensive in the long run.

As I stated earlier, if you don't understand payroll taxes do not try this yourself. Ask your CPA, your accountant or use a payroll service.

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Housing Deals 8 posts since
Jul 20, 2007

7. Re: Guidance on paying our first employee Oct 12, 2007 12:42 PM

in response to: DallasPayroll

Thanks to everyone for taking the time and share some fantastic advice. I'm glad I had the foresight to get some advice on this because there was a lot I didn't know... Now I can get my newly expanded business off to the right start with all the right paperwork. I think I'll hire a permanent employee and likely use a payroll service to take some of the burden (and help me sleep at night)...and I'll let the community know how it goes.

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NetworkGuru 25 posts since
Aug 6, 2007

8. Re: Guidance on paying our first employee Oct 14, 2007 10:41 AM

in response to: Housing Deals

Housing Deals,

I just hired my first employee also. I had all the same questions you did. Eventual, after a great deal of searching, I simply decided to use the Bank of Americas Payroll service. They will calculate their taxes, and even file them for you, if you choose their higher end service.

My only issue with their service is that if you want to provide your employee with Direct Depositing of their paycheck, they must also have a BoA account. BoA payroll cannot direct deposit to any other bank. I don't understand why, but, what can I do.

Other than that, you have full control over the service, and it walks you through all the things you have to do/forms to file with the IRS and State.

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QuickBooksPro 2 posts since
Oct 16, 2007

9. Re: Whether or not to use BofA Payroll Service Oct 16, 2007 11:13 PM

in response to: NetworkGuru

If you don't like the limitations that BofA's Payroll service puts on you, you can always use a third party service like QuickBooks, ADP, PayChex, or CompuPay. As far as I know as a Certified QuickBooks ProAdvisor who has worked with clients using all of them, they all will let you direct deposit your employee's checks into their respective checking accounts. Sometimes, if you ask the right people, you can even get your set up fees waived.

Why make your employees mad because your payroll service doesn't believe in customer service?

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Guidance on paying our first employee

Aug 9, 2007 3:11 PM

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