Administering payroll can be one of the most challenging aspects of running a business. The task needs to be completed on a regular basis. You also know it needs to be done correctly. Otherwise, you could face steep fines, penalties,and an audit.
You’re likely aware of the rules for administering payroll in Canada, but what about US payroll? If you’re hoping to expand across the border and offer services to clients with US employees, you’ll need to know the rules there too.
As with Canadian payroll, there are many pitfalls to avoid. Watch out for these ones, and you’ll have a much easier time administering payroll in the United States.
1. One Danger of US Payroll Is Misclassifying Employees
Employee misclassification is a hot topic south of the border. Canadian staffing agencies should be particularly aware of the differences in the definitions of “employee” and “contractor.”
You might be confused by talk of 1099 employees. These workers actually aren’t employees at all, which is why there’s so much confusion. They’re contractors, and you hire them much the same way you would here in Canada.
The IRS uses a test to determine if a worker is truly a contractor or an employee. Your responsibilities are much different in either case, and misclassification can be costly.
2. The State Equation
There are other intricacies involved in US payroll. One of the complicating factors is the differences among states.
Another complication can be deciding where to pay taxes. This can be challenging if you’rehiring employees who will travel for work, or if they work remotely for your clients. You’re supposed to pay your taxes in the state where the work was performed, not necessarily where the worker lives.
You’ll want to check up on the rules around payroll in the states where your clients operate. If you’re unsure, asking for help from an expert team is a great plan.
3. You Didn’t Tally All Your Costs
The largest component of US payroll is undoubtedly the hourly wages you pay to employees. There are other costs as well, some of which you may not think of immediately.
You’ll need to check in on the costs of Social Security and Medicare. Unemployment insurance rules vary from state to state, but almost every state has some form of insurance.
You’ll need to calculate the costs of each of these for each employee. If you don’t, you could find yourself in trouble when it’s time to pay US payroll taxes.
4. You Don’t Keep Good Records
In Canada, it’s a legal requirement to keep records. In the US, the situation is a little different, but you’ll still want to make sure your record-keeping is in order.
If you’re not keeping good records, you may miss notices sent to you by the IRS. If you fail to respond to a notice, the IRS may penalize you or even audit your agency. Having a paper trail is essential, even if you take steps to avoid being audited.
Keeping good records can help you respond to IRS notices in a timely way and reduce your risk of being audited.
5. You Make Late Deposits
The IRS has a very strict schedule for remitting payroll taxes. If you’re late, you could face steep penalties. You may also trigger an audit.
Late payments are common for a few reasons. One, you may not be using the most efficient payroll processes. Two, you might not have the cash on hand to pay your remittances when they’re due.
Better cash flow management and assistance with your US payroll activities can help you. If you need a hand delivering payroll in the US, don’t be afraid to ask for help from the experts.