End Goal: Understanding General Employment Information #
This section should give you a foundational understanding of employment and how to pay your employees. Whether you need employees on day one or you will wait until later, it is a good idea to have a basic understanding of employment and payroll.
Expectations:
It is important to be realistic when hiring your first employees. Oftentimes you will hear companies say
“We are a family” or “We are looking for people who are interested in more than just money.”
Do not be these companies. A business is buying an employee’s time. You are not buying their lives, you are buying a part of their time. An employee will never care about your business as much as you do. This is okay if you are realistic with your expectations. You are buying their time and not buying them. You may need to adjust your budget with this in mind. Be realistic with how much work an employee will be able to do.
Pay Rates:
You get what you pay for. If you want rockstar employees then you have to pay rockstar rates. If you lowball everyone then you will get low quality employees. Be sure to budget appropriately for your market and offer a good livable wage. You don’t want your workers on food stamps. Employment websites and online job boards can give you a good idea of what the market demands for different types of employees.
Benefits:
The sole purpose of benefits are to keep your employees happy. They are an extra cost for the employer that should be factored in as a part of their overall wage. You may not be able to afford much, but even a little something can be the difference between keeping an employee and losing them to a better offer.
- Health Insurance – This is pretty standard for a large portion of companies. Only companies with 50+ employees are required to provide a qualified health plan but it is definitely worth a look if you want to keep great employees.
- Retirement Plans – Various options exist. A 401K being very common along with pensions and other options.
- Raises – It has been proven in several studies that employees who move jobs every 2-3 years end up making more money in the long run than those that stay loyal to one company. As you adjust your budget and make projections for the future, you definitely need to account for raises. Training new employees is more expensive than just giving your current employees raises in the long run.
- Hourly Vs. Salary (Pay Rates) – When hiring employees, you need to decide whether you will be compensating them by the hour or a salary. Your industry may have different standards, professional employees are typically paid on salary. The advantage to hourly rates is that you get exactly what you pay for. They are paid for each hour they work. Salary has the advantage of being easier to budget.
- White Collar Exemption – You may think that if you pay salary you don’t have to pay overtime. This may be true but a yearly threshold exists. For 2024 it is $58,656, you must pay a salary over this threshold for employees not to be paid overtime. Anything less even on a salary may be entitled to overtime pay.
- Payroll Taxes & Reports – Payroll taxes are withheld from employees paychecks. The business owner is responsible for withholding the correct amount. Business owners also have their own payroll taxes they pay on top of what is withheld.
- Taxes Withheld – These are anything that are withheld from the employee before even getting a paycheck.
- Federal Income taxes
- FICA Taxes – 6.2% Social Security and 1.45% Medicare
- State Income Taxes – Unless you are in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, or Wyoming, you will have state income taxes as well as the others listed here.
- State Unemployment Insurance – Only some states (Alaska, New Jersey, and Pennsylvania) withhold from employees
- Taxes Contributed – Give Definition
- FICA Taxes – Employers pay a matching contribution of 6.2% Social and 1.45% medicare
- Federal Unemployment – Employees pay Federal Unemployment at a rate of 0.6% or 6% depending on whether they contribute to State Unemployment
- State Unemployment Insurance – Every state is different
- Payroll Forms – All links lead to the listed form
- Taxes Withheld – These are anything that are withheld from the employee before even getting a paycheck.
- Payroll Software – Payroll software really is your best friend when you have employees. Trying to do everything manually using various tables is a nightmare. Quickbooks and any basic accounting software has a payroll package or subscription that will do all the work for you. It even tracks information to help fill out the various forms. You should still be familiar with all of them.
- Payroll Companies – You can always hire a service to handle your payroll and they will take care of everything for you. You simply need to submit their salary info, or if hourly, submit the hours each pay period and they will handle payroll from there. Large companies like Paychex, Paycom and ADP are good options as are local bookkeeper and payroll providers. These are definitely worth looking into if you have no background in payroll or accounting.
- Independent Contractors – They provide work for your company but are not employees. The primary difference of an independent contractor is the amount of control you have over them. If you control their hours and how they accomplish jobs then they are employees and must be paid as such. If they work independently for themselves and provide services for more than just your business they are an independent contractor. It is very important to confirm that they are legally considered an independent contractor.
