At some point, you might need to hire out some of the work for your small business. Here?s what you should keep in mind when paying workers.
A few years ago, I realized that I needed help with my small writing business. I just couldn?t handle all of the mundane tasks that needed doing. I started outsourcing some of my social media posting, and a few other items. Suddenly, I had more time to work on the ?big picture? items in my business.
Once you start bringing in help on your business, you need to be aware of the rules and regulations that surround paying workers. You don?t want to end up on the wrong side of the IRS or a state regulating agency.
W-2 vs. 1099-MISC
Your first decision when paying workers is to determine whether you are going to hire them as actual employees or choose to use them as independent contractors. I hired a virtual assistant as a contractor. However, I know plenty of small business owners who have decided to hire employees and who issue them W-2s come tax time.
The IRS makes it clear that there are certain things you can?t do if you want to classify a worker as a contractor. If you are going to dictate the hours someone works, tell them how to do their work, and try to control their dress or behavior, you are dealing with an employee, and you will need to make sure that you follow the law in paying them.
My 1099 independent contractor can work when she wants, and I make no stipulations about her workspace or how she accomplishes her work.
Payroll and Taxes
When you use independent contractors and issue a 1099 (or not, if you pay through PayPal), you don?t have to worry as much about payroll and taxes. You should still use bookkeeping software to stay on top of the situation, but you don?t need to worry about payroll taxes. You just make payments, and keep good records so that you?re ready come tax time.
On the other hand, things get a little trickier when you hire someone as an actual employee and you issue a W-2. When this happens, you need to make sure that you are set up to pay your portion of the payroll taxes, which is half of what your employee would pay. You also need to make arrangements to withhold state and federal income taxes, based on the way your employee fills out the W-4, claiming exemptions.
When things get complicated like this, it can make sense to hire a payroll company to manage your employees pay ? especially if you plan to scale up and add more workers down the road. Also, when paying workers with benefits like retirement and health care, things get even more complicated and it becomes even more important to get the help of professionals.
Don?t Let Paying Workers Bog You Down
Managing payroll can be one of those things that bogs you down. Accounting and payroll are tedious and time-consuming and can draw your attention away from what really matters in your business. As your business grows, and as you add more people to your team, consider outsourcing some of the administrative aspects, such as accounting and payroll. The professionals will be better able to handle the situation, and you?ll be able to better focus on growing your business.
