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Employee Life Cycle Part 1: Paying Employees

It's vital that your business complies with the standards and requirements outlined by local, state, and federal laws and regulations for paying your employees and paying your business taxes. Paychex HR consultant Margie Bassford explains more.


Discover more about the employee life cycle:

Part 2: Proper Employee Documentation

Part 3: Human Rights & Discrimination Laws

Part 4: Paid Time Off

Part 5: Employee Behavior & Performance

Part 6: Workplace Safety

Part 7: Employee Handbook Policy

Part 8: Employee Discipline & Termination

Part 9: Attracting & Retaining Talent

Part 10: Deepening Employee Engagement


Whether you're hiring your first or your 50th employee, it's important that your business complies with the standards and requirements outlined by local, state, and federal laws and regulations for paying your employees and paying your business taxes.

The Fair Labor Standards Act, or FLSA, sets federal standards for minimum wage and overtime, child labor laws, and record keeping requirements. We'll help you understand your obligations for each as a business owner. There are also a number of payroll tax rules, regulations, and deadlines that business owners need to understand and comply with – the basics of which we will outline here.

Properly classifying employees is vital for your business. The FLSA allows for two classifications for workers: exempt and non-exempt. Among the differences between the two is eligibility for overtime pay. Exempt employees generally do not receive overtime, while non-exempt employees are eligible to receive it. The FLSA requires employers to pay overtime to non-exempt employees who work over 40 hours in a work week. And it must be paid at a rate of at least 1 and ½ times the employee's regular rate of pay.

There are also distinctions between an employee and independent contractor, who is customarily considered self-employed. The FLSA applies only to covered employees, but if your business has both, you must pay each worker appropriately.

Misclassifying workers can be costly. If not done properly, you may end up having to pay back employment taxes, back pay, and/or overtime. Current job descriptions, which outline requirements and duties, are important for the classification process. And workers should be informed of their status when they're hired or promoted.

If you have employees, you must pay them for all hours worked, plus accurately handle tax deductions, deposits, and returns. Recordkeeping and tracking hours worked to correctly determine regular and overtime pay are essential.

Total compensation is made up of regular pay, overtime, vacation and sick pay, commissions, bonuses, and fringe benefits. An employee's paycheck also includes the withholding of certain employment taxes from their pay, including federal income tax, Social Security and Medicare, state and local income tax, and state disability insurance in some states.

Employers are responsible for depositing employee and employer paid taxes on a schedule dictated by federal, state, and local tax agencies. These taxes include Social Security and Medicare, federal and state unemployment taxes, state and local, if applicable, income taxes, and state disability.

To avoid penalties, make sure you know your federal, state and, if applicable, local deposit frequency and deadline.

As a business owner, you also have a number of tax obligations, including reporting wage and tax information on your tax returns, which are used to verify employee eligibility for state unemployment insurance, determine the amount of compensation benefits to be paid, and reconcile tax deposits remitted. Keep in mind that the form of business you operate determines the types of taxes you must pay and how you pay them.

Paying your workers and paying your business taxes can be complicated, but are essential to keeping your business up and running. Hiring a tax professional or payroll provider can help alleviate some of that burden. But remember, the responsibilities to fulfill and comply with these wage and hour requirements are ultimately yours.

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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

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