Small Business Payroll Services
Payroll software and 24/7 service platform for businesses with 1-19 employees.
- Enter and run payroll online in as few as two clicks via our free mobile app
- Automatically calculate, pay, and file payroll taxes
- Allow your employees to initiate self-service actions
Compare Our Small Business Payroll Options
Paychex Flex® Essentials
Easily sign up, set up, and do payroll and tax filing online with chat and phone support available 24/7. For businesses with 1-19 employees.
Paychex Flex® Select
Paychex Flex Select provides expert service to match your business needs to our solutions. Process payroll, file taxes online, and have access to online employee training and development with 24/7 support.
Paychex Flex® Pro
Full-service setup, payroll, and tax filing online, plus, valuable HR tools, and personal consultation to meet your business needs. Chat and phone support 24/7.
What You Get With Paychex Small Business Payroll Services
- Flexible and automated small business payroll processing online from desktop and mobile
- Option to submit payroll by phone to a payroll specialist
- Ability to pay different types of workers — exempt and non-exempt employees, contractors
- Automatic payroll tax administration
- Payroll dashboard with configurable views
- Robust reporting and analytics for insights into your payroll and HR data
- 24/7 customer service and technical support
- New-hire reporting to government agencies
- Online employee self-service
- Direct deposit, paycards1, paper checks, online tip sharing, and on-demand access to earned wages
- Free mobile app for you and your employees
- HR analytics and events calendar
- Labor law poster kit
- Garnishment payments
Simplify Payroll, From Setup To Service and Support
We’re one of the nation’s leading payroll companies for small business, offering hundreds of thousands of businesses with services and support that can help ease the time-consuming burden of small business payroll processing and tax filing.
Switching Payroll Providers Is Easy
Whether you’re looking to start outsourcing to a payroll provider for small business or thinking about switching payroll companies, Paychex makes it fast and easy.
24/7 U.S.-Based Service
Get expert service from our U.S. based service centers, staffed with our highly-trained specialists.
With the ability to initiate a wide-range of self-service actions, your employees can complete their new-hire onboarding, access and change their personal information including direct deposit, fill out tax forms, view W-2s and pay, and much more with our payroll software for small business.
Simplify Your Business Taxes
Keeping up with payroll tax rates, calculating liabilities, and making payments can be time consuming. Paychex eases that burden and can help your business claim eligible credits.
How Paychex Flex® Works
Run Payroll Quickly and Easily
Run Payroll Quickly and Easily
Enter payroll in as few as two clicks from your desktop or mobile device.
Access Critical Reports
Access Critical Reports
Automatically create cash requirements, job costing, and tax deposit notices. View W-2s and leverage other real-time features.
Use our Help Center to access current information, chat features, articles, and how-to guides for activities and tasks.
View Employee Information
View Employee Information
Have administrator access to the most up-to-date information about employees, including the ability to quickly view their contact information, view their performance evaluations, and keep track of in-app conversations you've had.
With the Right Payroll Provider, Businesses Stay in the Driver's Seat
Frank's Auto Repair uses technology to stay current and keep its customers' cars on the road and running smoothly. Owner Frank Roberts made the same discovery about payroll and his business, choosing Paychex to help ensure the process was efficient, accurate, and compliant with payroll tax requirements.
"When it comes to Paychex, the personal touch is nice .... Having Paychex as my payroll service just makes my life a lot easier. Never had any problem with any tax issues or anything."
All-in-One Payroll and HR
Like all of our payroll options, our small business payroll software integrates with other Paychex services through Paychex Flex to help you take your organization where it needs to go.
Time and Attendance
Whether your employees are onsite or working from home, help boost productivity with the latest time-tracking technology and help ensure you’re paying your employees for the time actually worked.
Our total HR solution provides you the HR services, support, and benefits that your one-of-a-kind small business needs.
As the nation’s largest 401(k) recordkeeper*, we offer multiple retirement plan types and investment options to fit the needs of you and your employees.
Paychex Insurance Agency offers workers’ compensation insurance plans from A-rated national carriers, while our integrated Workers’ Compensation Payment Service** gives you smarter, more cost-effective ways to manage your policy and improve your cash flow.
Frequently Asked Questions
Can I Do Payroll Myself?
Can I Do Payroll Myself?
When considering how to do small business payroll, an important decision business owners need to make is whether to handle payroll and tax responsibilities in-house or outsource to an expert third-party provider. You may have also asked yourself, “How do I set up payroll for my small business?” at some point. Consider the many steps required to set up and run payroll, and note that payroll and tax responsibilities can be time-consuming and complicated, plus even a single payroll error can be costly to the business.
How Do I Choose a Payroll Company?
How Do I Choose a Payroll Company?
Finding the best payroll software for small business may take some time and effort, but the payoff is worth it. The payroll services your business needs depends on many factors, and should be able to meet your needs now and as your business changes and grows. We can work with you to help you choose a payroll solution for small business that best fits your needs. Learn more about how to choose a payroll company, essential questions to ask during the process, and features to look for in a top payroll provider.
What Is the Best Payroll Service for My Small Business?
What Is the Best Payroll Service for My Small Business?
If you are looking for a high-quality small business payroll system, Paychex offers leading payroll processing, tax preparation, calculation, and filing services, as well as many HR services. The best payroll service for your business will depend on factors such as how many employees you have, any budgetary considerations, and your current and future business objectives.
How Much Does Payroll Cost for Small Businesses?
How Much Does Payroll Cost for Small Businesses?
Cost is often a determining factor when considering whether outsourcing payroll is the right decision for your business. On one hand, you may feel that your business can't absorb the added cost of paying someone else to manage payroll. On the other hand, handling payroll on your own can be time-consuming and expose your company to unnecessary risks. Luckily, there are many cost-effective payroll options built specifically for small businesses. For instance, Paychex has payroll packages starting as low as $39 per month, plus $5 per employee.
Do I Need a Payroll Service for My Small Business?
Do I Need a Payroll Service for My Small Business?
You are responsible for running payroll every pay period as soon as you bring on a single employee. And generally the more employees you bring on board, the more complicated the process can become. That’s why it’s so beneficial to have leading online payroll services for small business that can scale with your organization.
Why Should I Switch to Paychex?
Why Should I Switch to Paychex?
If you’re looking to switch payroll providers, Paychex offers leading payroll and tax filing services, industry-leading technology, dedicated support, and local staff who understand your business. Compare some of the leading small business payroll systems, including the services and features they offer.
How Does Paychex Help With Ensuring Compliance on Taxes and Other Issues?
How Does Paychex Help With Ensuring Compliance on Taxes and Other Issues?
Your business must stay on top of payroll tax responsibilities, including keeping up with payroll tax rates, calculating liabilities, and making timely payments. These tasks can be time-consuming, but fortunately Paychex can help. Our payroll tax services can help you avoid tax penalties for late or inaccurate payments, and our tax credit services can assist you in finding valuable tax credits that your business deserves. Learn how Paychex can help you take care of payroll taxes.
Payroll Insights for Your Business Needs
How Integrated Time Tracking and Payroll Can Help Your Business
6 min. Read
Integrating payroll and a time tracking solution in your business can help you save money and increase efficiency by eliminating unnecessary redundancies in key business systems.
Integrating a time and attendance system with payroll software can have a positive impact on your company's budget and level of employee engagement. For many leaders managing employees' time and attendance is a significant and time-consuming task related to operating a business. Companies that are currently using separate, non-integrated systems for payroll and time tracking are likely still experiencing inefficiencies and added costs that an integrated system can help alleviate.
What Is Time Tracking and Why Is It Important?
Time tracking is the process of collecting information related to the time worked, for each employee, as well as paid time off. Accurate time tracking is an essential function needed to complete the payroll process. Additionally, well-maintained time records serve as a foundation for a company's budgeting, planning, staffing, and compliance efforts.
The Disadvantages of Manual Time Tracking
When the time and attendance process is manual entry and it functions separate from payroll, the potential for errors and inaccuracies can be high. For instance, employees who use paper-based time and attendance systems may forget to complete their time sheets by the deadline, and then may make errors when rushing to submit their hours. They also might not recall precisely what time they came to work, the length of their lunch breaks, or the exact time they left for the day.
This opens the door to businesses either not paying employees for all time they've worked — a significant area of risk for businesses — or overpaying them. Issues revolving around payroll (such as not being properly paid) can negatively impact employee morale, which in turn can affect productivity in the workplace. It can also result in fines/penalties from an enforcing agency.
Using Separate Systems for Time Tracking and Other HR Tasks
Even if HR departments use software programs to track various HR tasks, different systems can lead to inefficiencies, increased costs, and frustrations.
For example, a company may have purchased a standalone license for a payroll processing software package, but that software doesn't integrate with electronic time clocks or other tools. When an employee has an address change, it may be processed in one system but not the other, leading to a paycheck being sent to an outdated address. HR staff may also be frustrated with the inefficiencies of having to enter this information into various systems multiple times and the difficulties they encounter trying to find and correct mistakes.
Integrating time tracking, as well as other systems like payroll and accounting, into your HR systems can save everyone time and headaches.
Benefits of Integrating Time and Attendance With Payroll
Integrated payroll time tracking systems can help ensure that information is consistent across all systems. When information is transferred and updated automatically, it also reduces the workload on HR staff from having to input changes multiple times in different work systems.
A well-integrated system that leverages the intelligent logic of automation allows companies and their employees to reach maximum efficiency. For example, electronic time tracking software can collect, track, and manage employee work hours, freeing up HR staff to work on higher-level tasks that cannot be automated. Data is analyzed on a real-time basis, enabling managers to review and approve employee time for payroll processing with greater efficiency and accuracy.
Automated systems can track time in several ways, such as reading:
- A magnetic stripe or bar code on an employee's company ID card
- Biometric information (eliminating the problems of lost badges or of one employee clocking in and out for another)
- Times logged in and out at the employee's computer
Additional core benefits of an automated time and attendance system can include:
Managing an Efficient Workforce
Automated time and attendance solutions give managers the ability to align scheduling to workload projections. This can help increase efficiencies, meet production goals, and manage costs. An analytics dashboard also can allow managers to review data over time, watch for opportunities to be more efficient, and head off problems that can derail productivity. Integrated solutions can then import those projections into other scheduling or budgeting systems, allowing managers to make more effective decisions with all the available data at hand.
A significant reduction in paperwork is another immediate benefit to employers and their workforce. With an integrated payroll system, there's no more printing of paper time sheets or data entry into the payroll system. Once the data from electronic time clocks is added to the system, it can automatically calculate and process payroll for the current period. With some solutions, records can also be integrated into individual employee portals, giving workers access to payroll records and providing an alternative to physical paper checks.
Freeing Managers and HR Staff From Repetitive Administrative Tasks
Relieving supervisors and HR staff of time-consuming administrative tasks is another big plus for employers. Information from tax forms, benefits data, and performance reviews only needs to be entered one time and into a single interface. In this way, your HR staff can turn their attention to broader and more strategic activities, such as new and more efficient ways to recruit and retain valued employees.
Payroll can be a large expense that can affect many areas of a business. Given the relationship between hours worked and metrics like productivity, employee satisfaction, or employee retention, a fully integrated payroll system offers the ability to dive into the data. For instance, you can use time tracking information to identify seasonal trends, or to evaluate the efficiency of different business lines.
Protecting Against Non-Compliance
An automated time and attendance system can help your company maintain its compliance with wage and hour laws. For example, depending on applicable federal, state, and local laws and regulations, staff members may have to be paid at specific rates of pay after working a certain number of hours per shift or per week. An integrated system can, for example, help with this by automatically applying a different rate when the hour mark is reached.
Time and attendance software can help you maintain compliance with laws like these by providing daily and weekly overtime functionality which is integrated with the payroll system to help ensure hours are paid at the appropriate rate.
Archived time records and policies (and more consistent data collection overall) can help make complying with various wage and hour laws and regulations much less onerous for employers. In the event your business is audited for allegations of wage and hour violations, the data accuracy generated through an integrated payroll system may help facilitate the audit process.
Improving Employee Engagement
Scheduling and handling time-off requests are important elements in maintaining an engaged workforce. When employee engagement increases, issues like turnover may decrease. Companies that offer staff enough hours to maximize their incomes, while being flexible enough to accommodate vacation requests or scheduling needs, generally foster a desired employee experience. With automated systems, it's possible to quickly review, approve, or address such requests and manage planned absences to minimize their effect on your company.
Employee reviews and pay increases can also have a significant impact on employee satisfaction. Automated alerts within the system can notify HR staff of upcoming employee anniversaries, benefits eligibility dates, and other important milestones. Once reviews or pay increases are entered into the employee's file, an integrated system can automatically update the employee's pay rate, enabling the raise to go into effect at the appropriate time designated by the employer. When HR has the tools to act quickly on these types of actions, employees can feel valued and more satisfied at work.
Fully integrated systems also give employees expanded self-service opportunities. When they log in to enter their time, they can also access payroll data, tax deductions, and benefit selections. Connected payroll and time tracking increases efficiency and helps to provide employees with the information they need, all in one user-friendly platform.
Boosting Data Access and Security
Streamlining data entry can also help increase the accuracy and security of your payroll and HR information across platforms. Because fewer authorized people are entering information and accessing the system, data is more likely to be accurate and there is less chance of unauthorized changes or incompatible information across different platforms. This can ultimately help prevent costly errors and save the time and money it would take to correct inaccuracies.
An integrated interface can also help improve data security, since payroll and HR benefits systems contain highly sensitive company and employee information, such as salary and Social Security numbers. By integrating these systems into a highly secure HR platform, you can help lower the chance of data breaches. By reducing the number of access points into the system through an integrated platform and eliminating disparate systems, companies can help reduce the opportunities for internal or external hackers to gain unauthorized access to sensitive information.
What To Look For in an Integrated Time & Attendance and Payroll Management System
Depending on your company size and the complexity of your payroll, there are a number of features within integrated payroll systems that work to reduce errors, streamline reporting, and provide useful information. When evaluating integrated payroll systems, look for the following items:
- Cloud-based software with automatic updates
- Employee self-service capabilities
- User-friendly reporting dashboards
- Ability to set up alerts and reminders
- Compliance tools
Time Tracking as Part of an Integrated Payroll and HR System
When payroll and HR information are available together through a single interface, self-service features are much more effective. Employees can log into the system and quickly access information about payroll, available vacation and sick time, current tax deductions, and benefits. This allows employees to find answers to basic questions themselves, which can boost satisfaction and decrease the amount of time that management and HR spend resolving simple issues.
Using an integrated payroll service can also make it easier for HR staff and managers to access employee information on demand, saving time and enabling them to make more informed decisions. Managers can also feel more confident that the information they are viewing is accurate and up-to-date.
Don't let outdated, manual, or separate time tracking processes drag down your productivity. Switch to a payroll system that is fully integrated with a powerful online timekeeping solution to help you effectively manage HR processes while minimizing inefficiencies.
A payroll calendar can help companies to budget and plan for compensation expenses over the entire year. Whether you pay employees biweekly, semi-monthly, once per week, or just once per month, you'll need to schedule dates and calculate the number of pay periods in a year to ensure the process runs smoothly. For U.S.-based businesses, payroll departments will need to pay attention to major holidays when banks may be closed, and the timing of pay dates throughout the year.
|2023 Payroll Calendar||2024 Payroll Calendar|
What Is a Payroll Calendar?
When doing payroll, companies typically adhere to a specific schedule, such as biweekly pay dates. Scheduling payroll dates in a calendar year prior to the beginning of the year helps employers to budget properly and maintain their compliance with wage payment laws and regulations. Detailed calendars can incorporate not just actual pay dates, but additional information such as pay period end dates, time sheet due dates and the workdays covered by each pay period.
A payroll calendar helps to ensure that all payroll-related administration is completed on time and payroll delays are avoided. Drawing up a calendar in advance helps to identify when adjustments to the payroll process may be needed. Employers may also need to communicate the changes in advance to employees to set expectations for changes in pay dates.
Examples of where adjustments may be needed include when a review of the upcoming calendar also shows that one or more paydays fall on holidays. Depending on which day the final pay date of the annual period occurs, a payroll run may need to stretch into the next calendar year. Other adjustments may also be required, such as the three pay period months that may occur with a biweekly pay period schedule.
How Many Pay Periods Are in a Year?
When preparing a payroll calendar, you will first determine how frequently your company will issue paychecks. Bi-weekly pay periods are the most common, but depending on pay frequency laws, business needs and employee preferences, you may choose to pay employees on a semi-monthly, monthly, or even weekly basis. Prior to finalizing a payroll calendar, employers should also check for applicable state or local laws or regulations to determine pay frequency restrictions.
Biweekly Payroll Calendar
Employers using a biweekly pay schedule will pay employees on the same day, typically a Friday, every other week. Biweekly processing requires the flexibility to handle a third payroll run in some months. Generally, there are 26 biweekly pay periods in a year, but depending on how the days of the week fall, there could be 27 pay periods. In some months, the regular pay date will occur three times rather than two. As a result, the payroll calendar should be reviewed before the start of the year to allow for proper planning.
Semi-monthly Payroll Calendar
When following a semi-monthly payroll calendar, pay periods occur on the same date, twice each month, such as the 15th and the 30th or 31st. Payroll calendars may need to be adjusted when the normal pay date falls on a weekend or a holiday when banks are closed. Typically, paychecks are sent on the closest business date to the established pay date, except where state law dictates otherwise.
Monthly Payroll Calendar
For monthly pay periods, employees would receive twelve pay distributions, once per month on a pre-determined date. This could simply be the last business day of the month, or another date that works best after considering factors such as the payroll department's workload, employee preferences, company cash flow, and state pay frequency requirements. A payroll calendar can be used to identify the payroll date for each month, working around holidays and weekends.
Weekly Payroll Calendar
Processing weekly payroll carries a higher administrative burden but can also increase employee satisfaction and may be required for certain industries in specific states. If payroll is processed every week, year-round, this generally results in 52 pay periods, depending on the date of the last pay period, which may shift into the next year.
Scheduled Payroll Can Make Business Simpler
A payroll calendar serves many purposes, from providing a visual tool that helps organize the payroll process, to setting deadlines for timecard submission and communicating upcoming pay dates. A payroll calendar can also assist when making decisions about cash flow and operational expenditures. Scheduling pay dates with your payroll services provider can also lead to improved planning and budgeting. When you know payroll dates for the year, you can take steps to also ensure that you have the necessary staffing and financial resources in place to get your paychecks out on time.
Withholding, filing, and remitting payroll taxes can be complicated tasks, but they are ones that you as a business owner must get right.
Let's review some payroll tax basics.
Employers are required to deposit employment taxes and report these taxes on a quarterly basis in most cases. Employment taxes include withholding from employees' paychecks to cover income taxes - federal, and where applicable, state and local - as well as the employees' share of Social Security and Medicare taxes (FICA). They also include the employers' share of FICA as well as federal and state unemployment taxes. The failure to properly withhold and deposit taxes may result in significant penalties for employers.
What Is Payroll Tax?
Payroll taxes are federal and state taxes related to an employee's taxable compensation. They include:
- Income tax withholding based on information provided by employees on Form W-4. This tax is paid exclusively by employees.
- FICA, Social Security and Medicare taxes, is paid equally by employers and employees. The Social Security portion is referred to as Old Age, Survivors, and Disability Insurance, or OASDI, and provides benefits to retirees, spouses, and former spouses, dependent children in some cases, and disabled individuals under retirement age. The Medicare portion allows those age 65 and older (and certain other individuals) to qualify for Part A Medicare coverage with no additional cost, plus coverage through Parts B, C, and D for an additional premium.
- FUTA, which is a federal unemployment tax, paid exclusively by employers.
- State unemployment tax paid by employers, although a few states require some employee contributions.
What Is the Purpose of Payroll Taxes?
Payroll taxes help the government pay for social programs like Social Security and Medicare, which assist the retired or disabled. FUTA, a federal tax, helps pay for those who have lost their jobs. The amount of money taken out of each paycheck depends on what the employee indicated on their W-4 form when they were hired. This form explains how much money should be withheld from each paycheck to cover federal income taxes.
How To Calculate Payroll Tax Withholdings
Calculating paycheck amounts for tax withholding involves looking at the employee's W-4 form and other information like salary and deductions. After considering these factors, the HR manager or owner can determine how much money should be taken from the paycheck for payroll taxes. For example, if an employee has an annual salary of $40,000 and indicated on their W-4 form that they are in the 10 percent tax bracket, then $400 would be taken from each paycheck for payroll taxes.
What Should Employers Know About Payroll Tax Responsibilities?
Employers have several mandatory tasks in handling payroll taxes:
- Calculate income tax withholding and other employment taxes.
- Deposit all payroll taxes according to a set deposit schedule (with an exception for a very small employer).
- File quarterly reporting about all employment taxes withheld, including income tax withholding and FICA (with an annual report for a small employer), and report annually to employees and the Social Security Administration about all employees' tax payments.
- Complete any additional required reporting, including state-level reporting and annual FUTA reporting.
Note: An employer may also be required to withhold other amounts from employees' paychecks, such as salary elective deferral amounts for employee contributions to 401(k) plans and flexible spending accounts or for garnishment to cover child support. These additional withholding amounts do not figure into payroll taxes; they are merely an additional employer responsibility.
Mandatory Employer Payroll Taxes List
Employers have responsibilities when it comes to payroll taxes, and the company may be penalized if these responsibilities are not done properly. There are a variety of payroll taxes, some paid by employers, some by employees, and some by both. But in all cases, it's up to employers to calculate, withhold, and deposit them.
When employers do not properly deduct payroll taxes from employee wages, they may face a variety of consequences. Depending on the extent of the violation, they may be subject to fines and penalties, including civil monetary penalties, criminal prosecution, and even jail time. Additionally, employers are legally liable for any unpaid taxes due. They may also have to pay interest on any unpaid taxes and the associated penalties if the errors are not corrected within a reasonable time frame.
Federal Income Tax
Income tax withholding from employees' paychecks is designed to cover what they will owe in federal income tax for the year. This includes amounts for employees' federal income taxes as well as Social Security and Medicare taxes. For certain employees, it also includes an additional Medicare tax (explained below under "Additional Medicare Tax").
While the phrases "income tax" and "payroll tax" are often used interchangeably, there is a distinct difference. Payroll taxes include amounts paid by both the employee and the employer to cover any federal taxes due, while income taxes specifically refer to the amount owed by the employee to cover their individual federal income taxes owed. Payroll taxes also include contributions to Social Security and Medicare for both the employee and employer, as well as federal unemployment tax (FUTA) and state unemployment tax.
In addition to federal income tax, payroll taxes may also include withholdings for any state income taxes due. All states - other than Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming which have no income tax, and New Hampshire and Tennessee which do not tax wages - require employers to withhold state income tax from employees' paychecks. Some cities, including New York City and Philadelphia, also have local income taxes, which can result in additional wage withholdings.
In a handful of locations, other payroll tax withholdings are required to cover:
- Short-term disability
- Paid family leave
- Unemployment benefits
Social Security Tax (FICA)
Social Security and Medicare taxes, which make up FICA, are imposed on both employers and employees to pay for Social Security benefits and Medicare benefits. Employees and employers each pay 6.2 percent of compensation up to an annual wage base limit ($160,200 in 2023) for the Social Security portion, plus 1.45 percent of all compensation for the Medicare portion.
Federal Unemployment Tax Act (FUTA)
The federal government doesn't pay unemployment benefits, but it does help states pay them to employees who've been involuntarily terminated from their jobs. To fund this assistance program, employers must contribute to FUTA, which is a tax created by the Federal Unemployment Tax Act. The tax applies only to the first $7,000 of wages of each employee. The basic FUTA rate is 6 percent, but employers can receive a credit for state unemployment tax of up to 5.4 percent, bringing the net federal rate down to 0.6 percent, or a maximum FUTA payment of $42 per employee.
However, the credit is reduced if a state borrows from the federal government to cover its unemployment benefits liability and hasn't repaid the funds. Such a state then becomes a "credit reduction state" and the credit reduction (listed on Schedule A of Form 940) means the employer pays more FUTA than usual.
State Unemployment Tax
States have to pay unemployment benefits to eligible workers who are involuntarily terminated (for any reason other than gross misconduct or furlough). To fund this liability, states impose unemployment tax on employers. The tax is calculated similarly to insurance in that the rate employers pay is based on their previous claims experience. The more claims made by former employees, the higher the tax rate on such employers. Each year, the state informs an employer of its tax rate, which can never be below a minimum amount.
Additional Medicare Tax
When an employee's compensation from an employer exceeds $200,000, the employer must withhold an additional amount for the additional Medicare tax. This tax is 0.9 percent of earned income over a threshold amount ($250,000 for joint filers, $125,000 for married persons filing separately, and $200,000 for all other filers). This tax is paid solely by the employee; the employer merely has the responsibility of calculating and withholding it. The $200,000 withholding threshold applies regardless of the employee's marital or tax filing status.
Understanding Payroll Tax Responsibilities
Employers' payroll tax responsibilities are extensive. They include figuring income tax withholding (federal and where applicable state and local), depositing payroll taxes, and filing various returns to report payroll activities.
How To Calculate Employer Payroll Taxes
Payroll taxes are figured according to an employee's reported deductions on Form W-4. This form tells the employer the employee's marital status and whether additional withholding should be made to cover certain personal taxes or whether an employee may be entitled to deductions that reduce his or her income taxes. If no W-4 is provided, then an employer withholds as if the employee were single with no other adjustments.
Employers relying on outside payroll service providers, like Paychex, can leave the calculations to the service provider. Some employers who do payroll in-house use software or rely on tables provided by the IRS in Circular E to calculate payroll taxes.
What Forms Are Required When Calculating and Submitting Payroll Taxes?
There are no special forms used to calculate payroll taxes, and no special forms are needed when depositing payroll taxes. However, there are required forms that report withholding activities to the appropriate federal, state, and local tax authorities.
Overview of Tax Returns and Deposits
Employers need to file employment-related tax returns and deposit employment taxes according to set deadlines. If they fail to do so, they may be subject to failure to file and failure to pay penalties. Additionally, "responsible persons" in the company who fail to deposit trust fund taxes—amounts withheld from employees' paychecks—may incur a 100 percent personal liability. This trust fund recovery penalty is triggered when a person with the authority to make payment decisions willfully fails to deposit the taxes. The possibility of these penalties means employers must get things right.
Employers must file a variety of tax returns related to employment taxes. On the federal level, they include:
- Form 940, an employer's annual FUTA tax return.
- Form 941, an employer's quarterly tax return reporting withholding and the employer's share of FICA.
- Form 943, the employer's annual return for agricultural employees.
- Form 944, used for small employers eligible to pay employment taxes annually rather than depositing them according to a schedule.
- Form 945, a federal income tax return used to report non-payroll payments, including pension distributions.
Employers must also report withholding to employees and the Social Security Administration annually. For this purpose, they must file:
- Form W-2 with employees.
- Form W-3 with the Social Security Administration. This is a transmittal form that summarizes all W-2s; copies of all W-2s are included with the W-3.
Employer Tax Deposits
All payroll taxes must be deposited with the government in a timely manner. The Internal Revenue Service (IRS) sets the tax deposit deadline for employers. These deadlines depend on the amount of the deposits:
- Semi-weekly schedules are for the largest employers.
- Monthly schedules are used by the majority of employers.
Some payments may be made with either Form 941 or Form 944, depending on certain criteria. Refer to pages 26 -27, Depositing Taxes in IRS Publication 15, for further details.
Filing Employer Tax Returns
Employers must file returns by set deadlines (explained below). Usually, employer tax returns are filed electronically through an authorized e-file Provider or software purchased specifically for this purpose.
How Often Do I Have To File Taxes?
Most employers' returns are filed annually. However, the employer's federal return (Form 941) is filed quarterly.
States have their own filing schedules for their returns. Check with your state tax/revenue/finance department.
How Much Should I Withhold?
It's up to the employer to calculate the correct amount of withholding based on an employee's submitted Form W-4. A revised Form W-4 went into effect in 2020, but existing employees are not required to submit new forms; employers can calculate withholding based on any previous versions on file. However, if an employee's tax status changes and they would like to adjust the amount of their claimed deductions (and associated tax withholdings), they must submit an updated Form W-4.
Upon hire, all employees are required to complete a Form W-4, Employee's Withholding Certificate to provide the employer with the information needed to properly compute withholding.
For new employees, employers must require them to complete Form I-9 to verify they are legally eligible to work in the U.S. It's also advisable for employers to have employees complete Form 8850, which is a form employers must submit to the state workforce agency to determine whether the new employee falls within a targeted group that entitles the employer to a work opportunity tax credit.
Once I've Calculated My Business Employment Taxes, How Do I Submit Them?
Payroll taxes must be deposited electronically through the Electronic Federal Tax Payment System, or EFTPS. Small employers, who are permitted to pay their employment tax when filing their annual employer tax return, can opt to use EFTPS.
For state employment taxes, check with your state to determine how to deposit employment taxes.
How Do I Handle Independent Contractors or Self-Employed Individuals?
Independent contractors and self-employed individuals are not employees. However, businesses should review the status of the worker to ensure that the individual is properly classified as an independent contractor. Businesses that engage them are not responsible for any employment taxes on payments made to them. These workers pay self-employment (SE) tax on their net earnings from self-employment (their profits from their business activities), which is essentially the employee and employer share of FICA. If a self-employed person also has wages from a job, the wages are coordinated with the SE tax so that the wage-base ceiling can be properly applied.
If total payments to an independent contractor in the year are $600 or more, the business must file an annual information return—Form 1099-NEC—to report the payments to the worker and to the IRS.
Staying Updated on Payroll Taxes Is Critical
Employer payroll responsibilities may often seem overwhelming. The rules keep changing, as evidenced by a Form W-4 update in 2020, a higher wage base limit for Social Security taxes, mandatory payments of certain benefits offset by employment taxes, and a deposit deferral option.
The consequences of improperly processing payroll taxes can be significant. To ensure that you do things correctly, consider outsourcing payroll to a payroll service provider.