Payroll Questions: FAQ for Business Owners

Managing payroll effectively poses numerous challenges, and it’s natural for questions to emerge. Although it’s a broad topic, we’re here to address some of the most frequent inquiries we receive at Tesseon.

Essential Payroll Terms Every Business Should Understand

Deductions: The portion of an employee’s wages deducted for taxes, benefits, or voluntary contributions.

Gross Pay: An employee’s total earnings before any deductions.

Net Pay: The amount an employee receives after all deductions.

Compensation: This encompasses all forms of payment to an employee, including benefits.

Pay Stub: This document breaks down an employee’s earnings, showing hours worked, rate of pay, and deductions.

Choosing Your Payroll Schedule

The frequency with which you process payroll may be influenced by state laws or union agreements. Without such stipulations, you’re free to select a payroll schedule—weekly, bi-weekly, or semi-monthly—that best suits your business needs and employee preferences.

Methods of Paying Your Employees

Tesseon supports a variety of payment methods, including paychecks, direct deposits, and paycards. We’re also on hand to help you navigate any state-specific regulations regarding these payment methods.

Unlocking the Mysteries of EIN

An Employer Identification Number (EIN) is essential for a business to handle taxes. Once obtained from the IRS, this number becomes crucial for various business transactions, from tax payments to loan applications.

Employers can obtain their Employer Identification Number (EIN) through several methods offered by the Internal Revenue Service (IRS). Here’s how:

Online:

The quickest way to obtain an EIN is through the IRS website. The online EIN application process is available to all entities whose principal business, office or agency, or legal residence (in the case of an individual), is in the United States or U.S. Territories. The online application process is available during specific hours, and applicants receive their EIN immediately after the application is completed and validated.

Fax:

Employers can fax a completed Form SS-4 (Application for Employer Identification Number) to the appropriate fax number provided by the IRS. If the entity’s principal business, office, or agency is located in a foreign country, there are specific fax numbers to use. A return fax number should be provided to receive the EIN within four business days.

Mail:

The Form SS-4 can also be mailed to the IRS. This is the slowest method, as it can take up to four weeks for the employer to receive their EIN.

Telephone (International Applicants):

International applicants may obtain an EIN by calling the IRS at a specific phone number dedicated to international applicants. This service is available from Monday through Friday, and the EIN is given immediately to the caller.

It’s important for employers to ensure that all information provided on the Form SS-4 is accurate to avoid delays in receiving their EIN. Also, note that there is no fee for applying for an EIN.

Managing Payroll Tax Forms

Your business size and structure determine which tax forms you’ll need to manage. A few key forms include:

Form 940 for federal unemployment taxes

Forms 941 and 944 for federal tax returns

Form W-2 for wage and tax statements

The Advantages of Pretax Deductions

Pretax deductions, such as those for employer-sponsored benefits, reduce an employee’s taxable income, offering a financial advantage.

Understanding Exempt vs. Nonexempt Employees

Nonexempt employees are protected by the Fair Labor Standards Act (FLSA) and are entitled to minimum wage and overtime pay. Exempt employees, generally in salaried roles such as administrative, executive, or professional, are not covered by the FLSA overtime rules. We at Tesseon can help clarify these classifications and what they mean for your payroll.

Navigating Unemployment Tax

Unemployment taxes, under FUTA and SUTA, support state unemployment programs. While FUTA is an employer-only tax, some states require contributions from both employers and employees.

Employee Wage Withholdings

Employee tax withholdings may include federal income tax, FICA taxes, and possibly state and local taxes, among others.

What is Supplemental Pay?

Supplemental pay includes bonuses, commissions, and overtime, and may have different tax requirements than regular wages.

Differences in Pay Types

Regular pay ensures nonexempt employees receive at least the minimum wage.

Overtime pay is at 1.5 times the regular rate for hours worked beyond 40 in a week.

Holiday pay may be offered by some employers at higher rates or as paid time off.

Setting Up an Employee in Your Payroll System

To onboard a new employee, you’ll need their Social Security Number along with completed Form I-9 and Form W-4.

Calculating Federal Payroll Taxes

Employers and employees contribute to Social Security and Medicare taxes, with specific rates and wage bases. Additional Medicare taxes apply to higher earners.

Social Security Tax:

Rate for Employers and Employees: 6.2% each

Wage Base Limit: $147,000 for the year 2022 (This limit changes annually based on inflation and other factors, so it’s important to verify the current year’s wage base.)

Medicare Tax:

Rate for Employers and Employees: 1.45% each

Wage Base Limit: Applies to all wages without a cap

Additional Medicare Tax:

Rate for Employees Only: 0.9%

Wage Base Limit: This additional tax applies to individuals earning more than $200,000, or $250,000 for married couples filing jointly.

Record-Keeping Requirements

Federal law mandates the retention of payroll records for a set period—three years for payroll records and two years for timesheets and wage calculations, with the IRS requiring four years for payroll tax records. State-specific requirements may extend these periods.

Simplifying Your Payroll Process with Tesseon

For businesses seeking assistance with payroll management, Tesseon offers comprehensive solutions to ensure compliance and save time, allowing you to focus on achieving your business goals. Whether through software solutions or complete payroll outsourcing, Tesseon is your partner in navigating the complexities of payroll.