Top 10 Payroll FAQs

Top-10-Payroll-FAQs

For some businesses, learning payroll might feel like learning a foreign language. For others, it can be likened to being an air traffic controller – you’re directing a group of new hires while simultaneously navigating the newest ACA compliance updates for your entire company. 

The bottom line is learning the ins and outs of payroll is difficult. We’ve compiled a list of the top ten payroll questions we have received at FastPay in hopes of helping you quiet the payroll storm.

1. What is an EIN?
    • EIN stands for Employer Identification Number and is also known as both a Federal Employer Identification Number (FEIN) or a Federal Tax Identification Number. This nine-digit number is unique to your business much like a Social Security Number is unique to an individual and serves as a way to identify your business through filings and different tax documents.

2. What is the difference between Gross Pay and Net Pay?
    • Gross pay is the total compensation between employer and employee based on the agreed-upon hours worked. Net pay is the amount an employee takes home after withholdings are taken out.

3. What is a direct deposit?
    • A direct deposit is an automatic, electronic transaction between the employer’s bank account and the employee’s bank account. By providing a seamless transaction between accounts, the risks associated with direct deposits are minimal. Many federal establishments, like the Social Security Administration, have moved away from paper forms and checks, now requiring recipients to receive their funds electronically.

4. What’s the difference between an I-9 and a W-4 form?
    • A W-4 form dictates how much money should be withheld from your paycheck for federal income taxes every pay period. Information regarding an employee’s marital status, number of dependents, and additional withholdings can be found on this form.

The I-9 came to pass by way of the Immigration Reform and Control Act (IRCA) of 1986. It is a less formal document as it is not required to be submitted to the federal government; however, it is no less critical as it determines whether or not an employee is eligible to work in the United States. The Department of Homeland Security (DHS) will occasionally update this form in which case it is necessary for new hires to fill out the latest form along with any other onboarding requirements.

5. Am I allowed to pay employees in cash?

Am-I-allowed-to-pay-employees-in-cash

    • Paying employees in cash is legal and you are more than welcome to do so, but if you avoid compliance with employment laws you can set yourself for more work and paying out more money in fines and penalties than it’s worth. If you do opt to pay your employee(s) in cash, be mindful that necessary deductions still need to be taken out – income taxes, FICA taxes, health insurance, and any other withholdings – and diligent notes and accurate records are necessary if you ever find yourself under the watchful eye of the IRS.

6. What Is Workers' Comp Insurance?
    • Workers’ compensation insurance is a form of accident insurance provided and paid by the employer in the event of work-related accidents, illness, or even death. If the accident/injury prevents the employee from working, workers’ comp will cover medical expenses or wage-loss compensation. However, because the U.S. Department of Labor (DOL) does not handle private company claims, if you are employed by a private company, you should direct your attention to the state workers’ compensation board for more information.

7. What is a payroll cycle and how do I determine what’s best for my company?
    • The state you live in will determine if there are set times between pay periods. Alabama and South Carolina, for example, have no regulations or specifications enacted, whereas employees on an annual salary can be paid on a monthly basis in Utah. This is all to say a “typical” pay cycle is highly dependent on your business, the regulations within your state, and any budgetary restrictions within your company. The most common payroll cycle practices are bi-weekly or semi-monthly, usually on the 15th and 30th of the month.

8. How long do I need to keep employee records?
9. How much does my company need to pay in payroll taxes?
    • It can be tempting to hold on to a few dollars and cents here and there, especially if your company’s central HVAC unit is in desperate need of an upgrade. However, the reward is not worth the risk, and paying taxes is a necessity for any employer. Common taxes to be paid by your business on top of what is being withheld from employee pay is:

      • Social Security taxes (6.2 percent up to the annual maximum)
      • Medicare taxes (1.45 percent of wages)
      • Federal unemployment taxes (Federal Unemployment Tax Act)
      • State unemployment taxes (State Unemployment Tax Act)

If your company is caught not paying your employment taxes. the IRS can issue a Trust Fund Recovery Assessment to all liable parties involved, even if a party genuinely had no idea the IRS wasn’t get paid. 

10.  Should I keep payroll in-house?
    • If considering keeping payroll in-house, do your due diligence now to ensure certain safety measures are in place.
      • Can you recover your payroll in the event of an accident or disaster?
      • How secure are your systems when gathering sensitive information?
      • How are you being notified of compliance updates?
      • Is your team knowledgeable about payroll? Are trainings being implemented and skill sets being audited?
      • Is your business equipped to handle business growth?

Truth be told, if your business can afford it, we recommend outsourcing your payroll to a company like FastPay. The compound expertise and knowledge within a payroll processing company have proven, time and time again, to be invaluable.

Questions and quizzical looks are just part of the equation when dissecting the inner workings of payroll. While avoiding penalties and unnecessary fines associated with these tasks are a necessity with any HR department, rest assured there is no longer a need to go at it alone.

Download our Free eBook to understand the True ROI of Payroll.

The True ROI of Payroll Service | download free ebook

 

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