As an employer, you’re responsible for reporting employee income, and for withholding and remitting appropriate federal income tax amounts to the IRS. But there are additional employment taxes you must report and deposit on behalf of both your company and your staff. These include:
Depending on the size of your organization – and the state from which you operate - you may also have to provide and pay for certain employee benefits. These range from health insurance, to the provision of leave for the birth of a child. In each case, you should be prepared for extra costs and a greater time commitment to bookkeeping duties.
Various factors go into calculating the employer’s portion of payroll taxes, but they’re all based on your employee’s gross wage or salary. As a rule, the more you pay your personnel, the higher your employment taxes will be.
According to the IRS, the current tax rate for Social Security is 6.2% of an employee’s wages for the employer, and 6.2% for the employee. Similarly, the rate for Medicare is 1.45% for the employer, and 1.45% for the employee. Chances are good that your business will also be responsible for covering 100% of federal (FUTA) and state (SUTA) unemployment taxes for any staff you employ.
The current FUTA (Federal Unemployment Tax Act) rate is 6% of the first $7,000 in annual earnings for each of your employees. SUTA (State Unemployment Tax Authority) rates vary by state, and often by individual employer. At the same time, most businesses are eligible to receive a FUTA credit for amounts paid into state unemployment funds. The maximum credit available – if you pay your state taxes on time and in full – is 5.4%.
Not all employee benefits are made available out of the goodness of a business owner’s heart: some are mandated by law. Let’s take a brief look at the most common of these.
Contrary to popular belief, the Fair Labor Standards Act (FLSA) states that employers are not required to pay personnel for time taken off – even if that time is related to illness, vacation, or federal holidays. In reality however, attracting and keeping quality employees often means making a set number of paid sick or vacation days available to them after a minimum number of hours have been worked.
The Family and Medical Leave Act (FMLA) dictates that if you employ 50 or more eligible full-time employees, you must provide them with up to 12 weeks of unpaid leave annually for certain family and medical reasons. While you’re not required to pay these employees while they’re on leave, you should consider potential costs associated with work coverage in their absence. And you must continue to fund any health benefits these employees would normally be entitled to receive.
According to the Affordable Care Act (ACA), companies with 50 or more full-time employees must also provide health insurance coverage for their workers. Most businesses today recognize that a quality health insurance plan is crucial to job satisfaction. So even employers with significantly smaller workforces are choosing to make health benefits available in many cases.
Workers Compensation Insurance provides wage replacement and medical benefits to employees who are injured on the job. Although insurance costs vary by industry, coverage is currently mandatory in every state but Texas. A handful of states even require that employers make short-term disability insurance available to personnel for injuries or illnesses sustained outside the workplace.
Decided that the benefits of hiring far outweigh any employment expenses? It may be time to seek the help of a payroll expert. At the very least, you should choose software that’s designed to calculate payroll taxes relevant to your industry or business type. And remember that remitting accurate employee and employer tax amounts on time is essential for avoiding interest and penalty charges.
Photo Credit: Canva