By Lee Allphin, Employer Advantage Founder and Chairman of the Board
Many businesses find out the hard way just how complex it is to properly manage payroll. Payroll ends up feeling like a hamster wheel that keeps spinning, requiring an ever-increasing effort from a growing company, but with little benefit to the bottom line. As a result, it is often our comprehensive payroll management services that top the list of our client’s needs when they first come to us.
If everyone needs it, why is it so complicated?
Payroll is so complex because employers have to act as tax collectors for the federal, state and local governments. With the governments running deficits in revenues to support the governmental infrastructure, tax collection becomes a major activity of any business. Unfortunately, the rules to calculate how much to collect are complex and constantly changing.
What taxes are collected?
Each year the Internal Revenue Service (IRS) publishes an updated version of the payroll tax guide. Just reading the table of contents for this year’s Publication 15 Cat. No. 10000W (Circular E), Employer’s Tax Guide For use in 2019 small-print 70-page double-column guide with tax tables can be a very daunting task. To simplify, there are three main payroll taxes; Income Tax, Social Security Tax, and Federal and State Unemployment tax.
Income Tax owed by an employee based on individual wages and compensation and marital status are paid to the federal, state and local tax codes. These wages are reported to the employee and the government on the annual W-2 form.
Social Security Taxes are collected from the employee and matched by the employer. This amount at the present is $6.2% for social security and 1.45% for Medicare equaling 7.65% paid by the employee and 7.65% by the employer for a total of 15.3% paid to the federal government.
Federal and States Unemployment Taxes—also called unemployment insurance—can range by geography from 1% to over 10% of income and is paid by the employer. The amount a business will pay varies by how many former employees have claimed unemployment.
What else goes into payroll?
In addition to taxes, the law requires employers to cover all employees on a workers’ compensation policy paid for by the employer. It is directly tied to the wages paid. The rate paid by the employer is calculated based on accident history of not only the business itself but all workers doing the same kind of work. Many employers look at workers’ compensation as another type of tax they are required to pay to be in business.
Employers also have to handle other payroll deductions, including pre-tax dollars spent on health insurance premiums and other pre-tax contributions to Section 125 plans (also known as cafeteria plans). If that weren’t enough, there are other complications like court-ordered wage garnishments that an employer must manage on every payroll. Payroll is a complex, ever-changing, and never-ending process for businesses!
How can Employer Advantage help?
Fortunately for our clients, Employer Advantage is an IRS Certified Professional Employer Organization (CPEO) with the necessary qualifications to perform the required responsibilities of payroll management—significantly simplify the process for our clients. Each employer has an Employer Identification Number (EIN) and each employee has a Social Security Number (SSN). The employee’s SSN can be reported on the EIN of the CPEO removing the employees from the EIN of the business where they work, which enables us to report multiple worksite employees on just one form.
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About Employer Advantage
A New Path to HR Bliss — Trusted for more than 25 years, Employer Advantage frees business leaders from the administrative and compliance burdens of having employees so they can focus on what they do best: helping their business succeed. From energetic entrepreneurs to large corporations, we create a tailored and strategic approach to fit individual business needs and company culture.
More than a slick software solution — Employer Advantage’s dedicated service teams save businesses time and money, while providing employees with top-notch assistance and benefits. We enhance profitability while reducing the costs associated with employment laws and the often-significant penalties for the failure to comply with them.
Our comprehensive suite of services manages payroll, employment taxes, health and benefits, retirement, human resources, employee manuals, safety, training, workers’ compensation, OSHA, DOT, and more.
Employer Advantage serves more than 400 companies throughout the country, with a special focus on the Midwest. We offer free consultations and strategic assessment of business needs, with quick-and-easy account setup and seamless transitions. 417-782-3909 | Toll-Free 800-467-3909 | info@EmployerAdvantage.com | Learn More: www.EmployerAdvantage.com