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What is the hardest part about payroll tax compliance?
 What is the hardest part about payroll tax compliance? 1024 682 admin
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What is the hardest part of payroll tax compliance? I saw this question on Quora.com, so I thought I’d answer it here as well.

There are lots of parts to payroll tax compliance.

  • Calculating the appropriate taxes.
  • Depositing the taxes (Federal, State, and Local).
  • Creating and filing the myriad of reports.

But the toughest part in my experience is dealing with mistakes made by the agencies involved.

You didn’t do anything wrong and now you have to prove it.

Let’s use the IRS as an example.

Taxing authorities make billions and billions of dollars of errors every year. Let’s use the IRS as an example but the States and Local authorities are not much different.

When your turn comes and the IRS makes an error what do you do? Or you made a simple error which did not rise to gross negligence, the IRS cannot penalize you for a simple error.

Your first letter protesting a penalty will be basically ignored. You will get a response saying they are not going to abate the penalty.

This is a form letter because no one really read your first letter.

You will get instructions on what to do if you disagree.

Your second letter to the appeals coordinator will probably be treated the same way. You will now be getting more and more threatening collection letters.

Next, depending on the time frame you will either go to an appeals hearing or a CDP (Collection Due Process) hearing. At this point, you may be able to solve it. Many times they will offer to settle for less than the full amount, but you, in fact, may not owe anything.

You cannot get them to understand what happened. What’s next?

Remember their job is to collect money not to abate penalties.

Now you have to file a petition with the US Tax Court. An attorney may want thousands of dollars to this even though the filing fee is only $60.00. You can actually file a petition on your own (Pro Se) for just the $60.00 or if you are indigent for free.

Most tax court filings (95%) are settled out of Court. The IRS does not like going to Court. You will actually at this point have some pretty sharp people looking at this and seeing if they want to explain to a Judge how they have treated you.

All of this to correct an error on their part or to get a ruling that you made a simple error and did not commit gross negligence.

That is the hardest part of tax compliance.

The easiest part is just to pay the penalty which is not a deductible tax expense.

Of course, this can all be avoided if you outsource your payroll to a reputable payroll company (hint, hint, like GetPayroll).

Difference between Semi-Monthly and Bi-Weekly Paycheck
 Difference between Semi-Monthly and Bi-Weekly Paycheck 1024 682 admin
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The pay period is the period of time that you collect pay for or how often you pay your employees.  The normal pay periods are:

  • Monthly
  • Semi-Monthly
  • Biweekly
  • Weekly
  • Daily

Quarterly and Annual are used occasionally in very special circumstances.  In most cases, you are required to pay at least monthly and, in some cases, more often than that.  Here is a link to a chart showing the state by state requirements for pay frequency.  https://www.dol.gov/whd/state/payday.htm

We recommend where possible that you pay on a biweekly basis.

Monthly is not available in many cases for employees that are subject to overtime provisions of the FLSA or the states.

Semi-monthly makes overtime difficult to calculate because the workweek for determining overtime does not coincide with the pay period, which may require you to go back and forth between pay periods to calculate overtime.

Biweekly should be two full work weeks.  You can calculate any overtime in each workweek and include it all on the payment for that pay period.  It cuts down the number of payrolls you have to run from 52 if weekly to 26. It may well cut down on the number of deposits you have to make to the government.  It helps improve cash flow for the business.  It is well accepted in most industries.  It is a good balance between cost and convenience.

To learn more, we recommend reading The Payroll Book: A Guide for Small Business and Startups

Choosing the right business entity for a new startup
 Choosing the right business entity for a new startup 1024 682 admin
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The entity you chose for your business determines several things about the way you process payroll. There are four standard entities for businesses.  There are a few others for specific and unique circumstances and businesses such as medical practices, but, the four following entity types make up the vast majority of business entities.  We are going to list some of the advantages and disadvantages of each but recommend that before you commit to one or another that you may want to consult with an attorney who is conversant with business entities as well as an accountant and your tax advisor.

Corporation

A corporation is an entity of the State.  That is it is created under state law and is regulated and taxed by the State of formation.  It can operate in other states and countries but it is formed under the law of a particular State.

A corporation is a business entity that is owned by a shareholder or shareholders, that is to say, people who own shares of stock. The shareholder or shareholders elect a board of directors to oversee the corporation’s actions and hire executives to run the day to day operation. In many cases in small business corporations, the shareholders, the board of directors, and the officers are the same people. The corporation is liable for the actions and finances of the business, the shareholders are not.

There are two standard classifications of corporations.

Subchapter C  or C-Corp corporations, which pay taxes as an entity, and Subchapter S corporations or S-Corps, which are pass-through entities.

C- Corp Advantages

  •  Limited Liability The companies’ creditors cannot seize the owners (shareholders) personal assets to pay company debts like they can in a sole proprietorship.
  •  Perpetual Life: A Sole proprietorship ends with the death of the owner. A corporation continues to exist with the death of a shareholder the shares pass to whoever the shareholder has designated or is controlled by State law.
  •  Transfer of Ownership. A shareholder can easily sell or transfer their share without restrictions unless there is an agreement to the contrary. An LLC member has to get consent from other members to sell or transfer interest.
  • C Corps are better vehicles for investment. C-Corps are better to handle outside investors providing equity investment.  Some investors will be unable to invest in an S-Corp or an LLC because of their entity form.  Also for an IPO, the 100 shareholder restriction with an S-Corp is not sustainable.
  • Corporate Law Is Well-Established. Corporations are the oldest non-sole proprietor formal entity and the laws concerning them are well established and codified.  The laws concerning LLCs are still being worked out in the various States.

C-Corp Disadvantages

  • Complexity.  The C-Corp has a number of requirements and laws that are in place to protect the shareholders from malfeasance including meeting notices and record-keeping requirements.
  • Double Taxation.  One of the ongoing complaints about the law on C-Corporations is they pay taxes as an entity and then dividends to the shareholders are taxed again at the personal level.

S corporation advantages include:

  • Limited liability for the shareholders. The companies’ creditors cannot seize the owners (shareholders) personal assets to pay company debts like they can in a sole proprietorship.
  • Pass-through taxation. An S corporation does not pay federal taxes at the corporate level. Business income or loss is “passed through” to shareholders who report it on their Form 1040 Federal Income Tax Return.  Business losses in the S-Corp can offset other income the shareholder may have.
  • Tax Advantages. The shareholder may take some of the income as distributions that are not taxed for self-employment taxes.
  • Sale of Shares. A shareholder can sell his shares without the complex adjustments that may need to be made in a partnership.
  • Cash method of accounting. S corporations usually can use cash basis accounting unless they have inventory.

S corporation disadvantages

  • Startup Expenses. There are costs in forming a corporation.  The State in which the corporation is formed will require paperwork and fees. An election will also have to be made with the IRS to obtain S-Corp status.
  • Ongoing Fes and Taxes. Most States require ongoing fees and or taxes for allowing the corporation to exist.
  • Tax Filings. The S-Corp must file an IRS Form 1120S Corporation Tax Return with the IRS every year. There may be additional State filings as well.  Plus unlike a sole proprietorship or partnership, the shareholder who works in the corporation will be required to take compensation and file all employment tax returns
  • Calendar year. An S corporation must adopt a calendar year for its tax year unless it can obtain special approval from the Commissioner of the IRS to use a fiscal year.
  • Stock restrictions. An S corporation can have only one class of stock and has limits on the number and type of shareholders.
  • Taxable benefits. Many of the fringe benefits provided by an S-Corp are taxable to shareholders that hold more than 2% of the stock.

Partnership

The standard general partnership is an entity where two or more people combine money, assets, skills, and other resources. The partners then share the profits and/or losses in accordance with the agreement between the partners. If there is no agreement then the assumption is that the partners share equally. General partners are personally responsible for all the liabilities that the partnership incurs.

A Limited Partnership will have at least one General Partner and one or more Limited Partners.  Limited Partners have no liability for liabilities of the Partnership except for what they have invested in the Partnership which is at risk.

A Partnership pays no taxes. The gains and/or losses are “passed through” to the partners. Form 1065, which is the Federal Partnership Tax Return, will have a form K1 for each partner. The K1 will be used to report the Partnership earnings/losses on the shareholder’s personal tax returns.

Advantages of a Partnership

  • Partners bring different skill sets enhancing the ability to bring knowledge to bear on the business situations.
  • Multiple partners may well have access to investable money that one partner might not. Also, multiple partners have advantages borrowing money as lenders have more than one person to look to.
  • Business opportunities. Multiple partners may well have access to opportunities and channels of distribution to a greater extent than a single person would have.
  • Having a partner(s) to share the responsibilities, labor, decision making, and other business activities as well as being able to handle the business when another partner is on vacation or sick can have a positive impact on stress.
  • Having a partner brings different points of view to a business situation allowing blind spots to be reduced and different outlooks to be included in the business.  Hopefully resulting in greater success.
  • A general partnership does not pay taxes the income or loss is passed through to the partner’s individual Form 1040 Federal Tax Return. This allows for a single point of taxation as opposed to C-Corps double taxation and allows business losses to offset other personal reportable income for the partners.

Disadvantages of a Partnership

  • Liabilities The partners are personally responsible for the liabilities the partnership creates. This could result in losing your bank accounts, assets, and even your home from liabilities created in the partnership even if you did not make the decisions.
  • You have partners who are also owners and who may want to, have a right to, have a say in the business, and how it is operated. This is vastly different than be a sole proprietor and running the whole show. If you are a control freak this might be a real problem
  • Getting out. If your partner does not want to sell the whole business you may not be able to.  There may be clauses in the partnership agreement that restrict when and to whom you can sell.  You may also find if your partner sells his interest with a new partner that may not be someone you can or want to work with.

Sole Proprietorship

The sole proprietorship is the simplest entity in which to operate a business. A sole proprietorship is not a separate legal entity. It just denotes an individual who owns and operates a business. A sole proprietor is personally responsible for all of the liabilities of the business they operate. The sole proprietorship is a popular entity in that it is simple, cheap, and easy to setup. Simply go into business in many cases without anything other than doing business.

Since a sole proprietorship is just its owner, taxation is simple. The sole proprietor reports all of their income and expense on a Schedule C of their Form 1040. Self-employment taxes are calculated on any gain and are equivalent to employment taxes that they would pay, if on the payroll.

Advantages of a Sole Proprietorship

  • A sole proprietor has sole and complete control over every legal aspect of their business
  • A sole proprietor can sell or transfer ownership of his business at his sole discretion at any time for any remuneration he wants
  • Reduced paperwork. A sole proprietor has no corporate or other documents to file. No separate tax return for the business
  • The cost of forming a sole proprietorship may be as little as zero depending on the business and the State where it is formed.
  • Many of the formalities, paperwork, forms, and other details are not required of a sole proprietorship.

Disadvantages of a Sole Proprietorship

  • The sole proprietor is personally responsible for all of the liabilities that the business creates. As well as any liabilities that an employer may create.
  • The sole proprietor makes every decision and has complete responsibility for all aspects of the business.
  • Investors usually won’t and in fact, may not be able to invest in a sole proprietorship.

LLC

An LLC is a hybrid entity. If you do nothing, the LLC is treated as a disregarded entity for general tax purposes. If there is one member (owner), it is treated as a sole proprietor for tax and payroll purposes. If there is more than one member it is generally treated as a partnership for tax and payroll purposes.

An LLC can elect to be treated as an S-Corp or a C-Corp for tax and payroll purposes. The election is made on IRS Form 8832 — Entity Classification Election.

LLC advantages include:

  • Creditor protection. Members are not personally liable for the LLC’s liabilities
  • Flexibility in organizational control, The LLC offers the ability to structure distributions in a fashion that is not lockstep with ownership. For instance, a member who brings cash to the formation may be entitled to a greater share of the profits until the investment is paid back.
  • Fewer documents and fewer formalities. The LLC is not currently burdened with the regulations and laws governing C-Corps in particular for shareholder protection.
  • Built-in transfer restrictions. The LLC agreement will many times spell out when and possibly to whom ownership may be transferred protecting the rest of the members from unwanted outsiders.

LLC disadvantages include

  • Additional transaction costs to create. The LLC is a creature of the State and the State will want paperwork and fees both at the origination and ongoing to maintain the protected status of the LLC
  • Built-in transfer restrictions. These restrictions are an advantage in some situations and may well be a disadvantage in others preventing a member from freely selling his interest to a willing buyer.
  • Usually additional costs of creation. LLCs are in many cases more expensive to set up.  An agreement has to be crafted to that all originating member s will sign. A corporation runs for a standard set of rules

Your legal and financial advisors can walk you through all of the complexities and help you select the best entity for your needs.  But you need to make the decision and not let someone talk you into a particular entity based on their wants, needs, and fees; and not yours.

Top Ten Reasons to Outsource Payroll Processing
 Top Ten Reasons to Outsource Payroll Processing 852 568 admin
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 1. Compliance

A outsource payroll service provider is continuously upgrading and improving their ability to provide the best service for you.

They upgrade their software and systems on a regular basis. This may be multiple times a month or even in a week if the law is in flux as it has been in 2020. The payroll provider company of course has to keep up with the changes in the laws of all 15,000 plus payroll-taxing entities as they happen. A payroll outsourcing company must be able to print out any updated form as needed, or they will have to do it by hand. This is a chore they do not want to undertake with many clients to complete them for.

The outsource payroll service provider provides ongoing training for their staff. As the laws and the systems change, training is provided to keep staff fully up to date. Payroll companies offer training on a weekly basis as well as seminars and webinars, professional publications, monthly chapter meetings, annual conventions, and more educational opportunities in the industry. Employees study for credentials such as FPC (Fundamental Payroll Certification) and CPP (Certified Payroll Professional), which are tested for and overseen by the American Payroll Association. Such certifications, like insurance licensing, require ongoing CPE. For payroll professionals, it is a minimum of 20 hours a year.

 2. Avoid penalties

Occasionally everyone misses a deposit or filing deadline, forgets a form or otherwise makes a mistake that results in a penalty that the agency would have to spend a great deal of time trying to resolve and usually end up paying the penalty anyway. The IRS alone issues roughly six billion dollars a year in employment tax penalties. 40% of small businesses are levied with a penalty every year, which averages around $800 per business.

Outsource payroll service provider greatly minimize the chance that your agency will pay any penalties or interest due to missed deposits, late filings, bad calculations or other clerical and computational errors of your payroll taxes. If a payroll outsourcing company makes a mistake, they are responsible for the research and costs. If it is their error, they should pay it. They have much more practice in doing this kind of work and make very few mistakes; otherwise, they do not last very long in the business. A good outsourced payroll company should deposit your payroll taxes and file all your payroll tax reports – on time, every time. After all, they are not processing taxes for just one company; they are filing for hundreds or thousands of companies.

In addition, if you have made an error that causes a penalty many times, the outsource payroll service provider can get the penalty abated. They are experts at this. Many, including us, have CPAs on staff that can work with the IRS to reduce or abate penalties. We are not always successful, but our track record is pretty good. In addition, we have a United States Tax Court Practitioner on staff that can take a client’s penalty, if appropriate, to US Tax Court. His record in winning cases in the Tax Court is superb.

3. Protection from check fraud artists who could/would raid your bank account.

When you use a outsource payroll service provider to process your payroll, you can reduce the number of checks that you write substantially. This not only lowers your accounting costs by reducing the size and complexity of your bank reconciliation; it can also reduce your banking fees.

It also reduces the opportunity for checks to fall into the hands of check fraud specialists. Check fraud is one of the largest dollar value crime in the country year after year. The Nilson Report indicates that check fraud exceeds 20 billion dollars a year, and the American Bankers Association recently stated that check fraud losses are growing by 25% per year. Payroll processing companies hire specialists to consult about reducing fraud.

A good outsourced payroll service provider should be able to discuss numerous devices that they use to protect themselves and their clients from fraud. One of the leading consultants in the payroll industry concerning check fraud is Frank Abagnale. You saw Leonardo DiCaprio play him in the 2002 movie “Catch Me if You Can.”

 4. Take advantage of Tax Credits that you may not even know exist.

An outsourced payroll company should have the ability to check to see if your company or location makes tax credits available for hiring some or all new employees. This varies widely from State to State and location to location. It is tough to keep up on all of the available credits unless you are in the business.

One of the newer Tax Credits is 45S. This provides a tax credit of up to 25% of the wages you pay for most non-vacation time off you give your employees. If you give them sick days, time off to care for a child, a “Mental Health Day”, or various other reasons, there is a Federal tax credit waiting. A good outsourced payroll service provider can show you how to set up your policy manual and system to make this credit, and possibly others, available to reduce your Federal Taxes.

5. Upgrade privacy for you and your employees.

When you outsource payroll, you actually increase your security and privacy. All the reports are computerized and encrypted. No reports left around for people to see. No boxes of old reports. Your outsource payroll service provider should have the ability to restore all your old files to a new computer for you if the existing one is compromised in any way. With direct deposit and employee self-service, there are no paychecks or paystubs to be left in the wrong place for the wrong person to see. As the boss, you can control who sees what if anything,

Employee self-service takes care of check stubs and check stub history when needed; Self-service also takes care of W2 distribution. It also has old W2s when needed. The employee has a password-protected site that they alone can access to get information. It can do a number of other things like new W4s and more if that is your desire.

6. Take a vacation.

With an outsourced payroll service provider that is cloud-based, you can input the payroll from any internet-connected computer in the world. We have a client who submits payroll via the Starbucks Wi-Fi at the beach in Hawaii twice a year (pre-COVID). You can have someone else submit the payroll and then you can check it from anywhere. You have the option to submit early or just have the payroll company replicate the previous payroll. It is like having a payroll staff without having to pay for it.

 7. Call on payroll tax experts at no charge.

Your outsource payroll service provider should have CPAs on staff to answer your technical questions. Not all outsource payroll service providers have them available for clients to talk to, but some do. Make sure you ask in advance. Payroll specialists, FPCs, and CPPs are great, but, sometimes you need that CPA! If you have to talk only to a call center or a clerk, then you are not getting the service you are paying for. They should have employment tax experts on staff to advise you and to be able to advocate for you to the IRS and the States. This includes such things as knowing you may have to report 1099 workers as New Hires for child support garnishments.

You would not go to court without an attorney why would you every talk to the IRS without a CPA or even better having a CPA do it for you. Our firm has every client execute an IRS “Form 2848 IRS Limited Power of Attorney”. This form which authorizes a CPA, an attorney or an Enrolled Agent subject to IRS Circular 230 requirements to represent your agency and advocate for you with the IRS. There are similar forms for the various States. With this form in place we can deal with the taxing authority directly for you. We know the law, regulations and procedures that are required to follow and can make them toe the line. In many cases we may have the experience to be more knowledgeable than the IRS employee we are talking with on your behalf.

In this time of Covid it may be of particular importance to have an expert in your corner. The law has changed in the following ways already and more is coming.
• PPP loan and of course the documentation to prevent having to repay it.
• Paid sick leave and Expanded family and medical leave under the Emergency Family and Medical Leave Expansion Act.
• Families First Corona Response Act deferral of employer share of employment taxes.

 8. Save time.

No checks to print. No tedious filings; monthly, quarterly annually. Never miss a deposit again. No answering IRS and State letters concerning employment taxes. You don’t have to keep up with tax or software updates. You don’t need to keep up with changes in tax or employment law. You don’t have to become a payroll professional. Your payroll outsource payroll service provider should have them on staff. Your payroll service provider will keep up on the changes and advise you if there is something you need to do. It will advise you when the I9 changes, and you need to throw out the old. No calculating net pay and taxes. No filling out tax forms. No remembering to make tax deposits timely.

An outsourced payroll provider will save you time to focus on growing your business.

 9. Save money.

Your outsource payroll service provider has current software always available at no additional cost. There are no costly tax updates to pay for, sometimes multiple times in a year. There will be no penalties for small oversights. You or your staff will need less time and training to keep up with changes to payroll and tax laws. Your outsource payroll service provider offers you economies of scale on everything from paper, checks, envelopes, to banking and direct deposit fees. All of this saves you time saves you money. Everything that lessens your exposure to fraud saves you money. Everything that increases privacy without you having to do anything can save you money.

10. Peace of Mind.

If you have read this far. One bonus reason to use a outsource payroll service provider. Peace of mind. No worries about payroll. No sleepless nights of the IRS bogeyman watching over your shoulder. You can concentrate on running and growing your business and have one less thing to worry about.

Time Clocks in COVID Era
 Time Clocks in COVID Era 1024 678 admin
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Due to COVID, we have seen many companies move to a remote workforce. This new setup brings its own set of challenges especially for employers who are tracking time by the hour. The best way to collect hours for hourly employees is a time clock.

It is estimated that a company that does not use time clocks overpays the hours worked by about 10%, and that is a lot. There are a number of types of time clocks. Let’s look at a few.

Manual Punch Time Clocks

This is the classic factory time clock that we see punched in the old movies. Picture a line of workers taking a paper time card and inserting it into a gray box with a clock face on the front. If you think these are no longer used, you would be wrong. These kinds of clocks are still sold and there are lots of companies that still make punch cards for time clocks. Google it and you will be surprised.

The card is taken by the employee whose name is on the top of the card from a rack and dropped into the time clock when they start work, to punch in. The time clock stamps the time on the paper card in a sequential fashion from the first punch of the week (or other period) till the last punch of the week. The employee replaces the card in a similar rack on the other side of the time clock, to allow the line of workers to flow smoothly as they pass through and punch their time cards in the most efficient fashion. At the end of the shift, or possibly to account for a break time, the employee goes through the line in reverse to punch out and put the card back in the original rack in the appropriate slot. The slots in the rack are often labeled to make it easy for each employee to find their individual card, particularly if there are a large number of employees.

Many times, the procedure is overseen by a foreman or other company employee. This is to make sure that everyone punches in/out and nobody punches an additional card for another employee who is not present. This is called buddy punching.

Sometimes the clock will be available for only a couple of minutes before a shift to a couple of minutes after a shift, to keep employees from punching early or late. There are cases in which the time clock may be locked before and after the punching timeframe to prevent anyone from tampering with or removing a timecard.

Any problems with the punches are corrected in writing by a supervisor, right on the timecard itself, and initialed by the supervisor.

The cards are collected at the end of the week and turned over to the payroll department. All of the time is then calculated by hand by subtracting the in-punch from the out-punch. Then, all the times for the workweek are added and totaled, normally right on the card. This facilitates the audit process if there is a question. The employee punches their own time on their own time card. If the punches are then subtracted and added correctly there is no dispute regarding the hours that the employee worked.

After the hours are calculated by hand, the hours are moved on to calculating pay.

Timesheets

Timesheets are nothing but a manual clock without any of the timekeeping properties of a time clock. You are solely relying on the staff to be both conscientious and honest. They should fill in the timesheet when they come and go. Trying to fill it in at the end of the week is an exercise in futility. Can you remember the exact time you left and came back from lunch on Monday when you fill out your timesheet on Friday? I couldn’t.

Five minutes here and there, no big deal, right? Five minutes a day for 250 working days is over 20 hours a year. That is several hundred dollars at a minimum that the employer is giving away, unknowingly. It also encourages less honorable employees to fudge their time even more, because they get away with it. It encourages other employees to do the same thing because they see their fellow workers doing it and prospering from it. Timesheets have all the weaknesses of time clocks and more, and few of the advantages.

Electronic Time Clocks

Electronic time clocks are newer and more efficient. There are a number of different types of electronic time clocks. Some use a plastic card such as a credit card with a magnetic stripe that identifies when an employee swipes a card to punch in and out. There are others where the employee punches in his assigned number to punch in and out. There are others that are handled by software on a computer network, where the employee enters a password to punch in and out.

The upside of these is that most are connected to a computer and the punches are automatically subtracted out and then added to get a total for the pay period. That information is used to calculate pay. Many times, they are actually connected to the payroll system so the hours are not re-entered into the payroll system; they are there automatically or get uploaded to the payroll system. All this saves time and errors of manual processing.

These systems do not prevent buddy punching, however. A worker can give his card or password to a friend to punch them in or out. A staff member can leave early and give his card or password to a friend to punch them out, even though they may have gone to a ballgame or the beach.

Biometric Time Clocks

Biometric is the latest method in clocking time. In 2007, Pay by Touch introduced biometric technology for the first time. These clocks use the staff members’ own bodies in one way or another to institute the time punch. They vary and can use hand geometry, voice, facial recognition, iris patterns, or other unique characteristics of the staff member that cannot be duplicated or shared. This eliminates buddy punching completely.  Many providers now offer mobile apps and websites to collect time more efficiently.

Salaried Employees’ Time

You need to track salaried employees’ hours/days worked by type and circumstances. Their paid time off needs to be recorded to make sure they don’t take days off with pay that you as the employer have not authorized. You need to track the Section 45S qualified time so as to claim your tax credit at the end of the year.

No matter what system you use, there will always be corrections, for example, for people who forgot to sign in, sign out, or other issues. Your supervisors need to be vigilant about the timekeeping under their watch and make sure their corrections are real and not just fanciful suggestions from employees who would cheat their employer if they could. The people entering the time should not be the people approving the time. The people approving the time should not be the people entering time into the payroll system. The approval process is, of course, where unscrupulous supervisors can enter ghost punches for their ghost employees

In addition, no matter how you collect time, you need to make sure that the equipment and/or software is protected so that it cannot be tampered with without notifying management that such tampering has happened.

Ensure your timekeeping clocks are integrated with your payroll processor to reduce errors and increase efficiency.

Learn more about integrated timeclocks here

How to pay your family members as a business owner
 How to pay your family members as a business owner 1024 680 admin
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One of the advantages of operating your own business is hiring family members. However, employment tax requirements for family employees may vary from those that apply to other employees. The following information may assist you in pointing out some differences to consider.

A child employed by parents

Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to Social Security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Refer to the “Covered services of a child” section below. Payments for the services of a child under age 21 who works for his or her parent in a trade or business are not subject to the Federal Unemployment Tax Act (FUTA) tax. Payment for the services of a child is subject to income tax withholding, regardless of age.

Covered services of a child

The wages for the services of a child are subject to income tax withholding as well as Social Security, Medicare, and FUTA taxes if he or she works for:

  • A corporation, even if it is controlled by the child’s parent,
  • A partnership, even if the child’s parent is a partner unless each partner is a parent of the child, or
  • An estate, even if it is the estate of a deceased parent.

One spouse employed by another

A spouse is considered an employee if there is an employer/employee type of relationship, i.e., the first spouse substantially controls the business in terms of management decisions and the second spouse is under the direction and control of the first spouse. If such a relationship exists, then the second spouse is an employee subject to income tax and FICA (Social Security and Medicare) withholding. However, if the second spouse has an equal say in the affairs of the business, provides substantially equal services to the business, and contributes capital to the business, then a partnership type of relationship exists and the business’s income should be reported on Form 1065, U.S. Return of Partnership Income (PDF).

Both spouses carrying on the trade or business

On May 25, 2007, the Small Business and Work Opportunity Tax Act of 2007 was signed into law and affected changes to the treatment of qualified joint ventures of married couples not treated as partnerships. The provision is effective for taxable years beginning after December 31, 2006.

The provision generally permits a qualified joint venture whose only members are a married couple filing a joint return not to be treated as a partnership for Federal tax purposes. A qualified joint venture is a joint venture involving the conduct of a trade or business, if (1) the only members of the joint venture are a married couple who file a joint tax return, (2) both spouses materially participate in the trade or business, (3) both spouses elect to have the provision apply, and the business is co-owned by both spouses and (4) isn’t held in the name of a state law entity such as a partnership or limited liability company (LLC).

Under the provision, a qualified joint venture conducted by a married couple who file a joint return is not treated as a partnership for Federal tax purposes. All items of income, gain, loss, deduction, and credit are divided between the spouses in accordance with their respective interests in the venture. Each spouse takes into account his or her respective share of these items as a sole proprietor. Thus, it is anticipated that each spouse would account for his or her respective share on the appropriate form, such as Schedule C. For purposes of determining net earnings from self-employment, each spouse’s share of income or loss from a qualified joint venture is taken into account, just as it is for Federal income tax purposes under the provision (i.e., in accordance with their respective interests in the venture).

This generally does not increase the total tax on the return, but it does give each spouse credit for Social Security earnings on which retirement benefits are based. However, this may not be true if either spouse exceeds the Social Security tax limitation. Refer to Publication 334, Tax Guide for Small Business, for further information about self-employment taxes. For more information on qualified joint ventures, refer to Election for Married Couples Unincorporated Businesses.

Parent employed by child

The wages for the services of a parent employed by his or her child in a trade or business are subject to income tax withholding and Social Security and Medicare taxes. Wages paid to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. For additional employment tax information, refer to Publication 15, Circular E, Employer’s Tax Guide, and Publication 51, Circular A, Agricultural Employer’s Tax Guide.

If your parent works for you in your business, the wages you pay to him or her are subject to income tax withholding and Social Security and Medicare taxes. Social Security and Medicare taxes do not apply to wages paid to your parent for services not performed in your business, but they do apply to domestic services if all the following apply:

  • You employ your parent;
  • You have a child or stepchild living in the home;
  • You are a widow or widower, divorced, or living with a spouse, who because of a mental or physical condition, can’t care for the child or stepchild for at least 4 continuous weeks in a calendar quarter; and
  • The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition.