Payroll FAQs: Common Payroll Questions Uncovered

How Do I Handle Overtime Pay Correctly?

For non-exempt employees, who are typically paid hourly, it's crucial to pay "time and a half" for any hours worked beyond 40 in a week. Exempt employees, such as salaried managers, might not be eligible for overtime, but their classification must meet specific criteria. Mistakes in this area can result in wage claims and penalties.

What Payroll Taxes Am I Responsible For?

Employers must withhold and pay several taxes, including federal income tax, Social Security, and Medicare taxes, as well as unemployment and applicable state and local taxes. You are also required to match Social Security and Medicare taxes yourself, stopping only once employees reach the annual Social Security wage limit. It's vital to file these taxes on time to avoid penalties.

What Happens If I Misclassify a Worker?

Misclassifying a worker as an independent contractor when they should be an employee can bring about penalties, back taxes, and accrued interest. Payroll tax discrepancies, along with potential conflicts with workers’ compensation or labor laws, are possible consequences. Ensuring accurate worker classification from the start is a safer path.

Do I Classify Workers as Employees or Independent Contractors?

Understanding how to correctly classify workers is crucial. Employees work directly for you, with controlled schedules and tools. They are typically salaried or paid hourly, and taxes are deducted from their earnings. On the other hand, independent contractors work on their terms, often using their equipment, and they handle taxes independently. If in doubt, consult the IRS's rules to avoid future issues.

Can I Offer Benefits Through Payroll?

Absolutely! Payroll can account for health insurance, retirement plans, and other employee benefits deductions. It’s key to correctly manage pre-tax versus post-tax deductions as this impacts how benefits are taxed and reported.

What Payroll Records Do I Need to Keep and For How Long?

According to the IRS, maintain all payroll-related documents for at least four years. These include timecards, pay stubs, W-2s, tax filings, and benefit deductions. Besides IRS audits, these records can resolve employee inquiries.

Understanding Payroll Basics

Even if your business outsources payroll, understanding its foundational elements is beneficial. Those managing payroll independently need to grasp these concepts to avoid costly errors. Whether it’s worker classification, tax practices, or record-keeping, the right knowledge can prevent issues. Reach out for support if you're unsure or need assistance.