Part and parcel of starting a small business in Nashville is determining how many employees you will need, and how you will hire, manage, and—last but not least—pay them. As you set up shop, don’t forget to discuss these payroll basics with your CPA firm. They will affect your business down to the details of operations and your bottom line.
Worker classification: employees vs contractors
There are two main ways to classify your workers: employees or contractors. As opposed to employees, contractors would only work with you on specific projects, invoice you for services rendered based on an hourly rate, and receive no benefits whatsoever. Employees, on the other hand, are essential to your day-to-day operations, and receive salary and benefits. These distinctions are important not only because they impact how you’ll get the services you need, but also because they dictate the tax requirements you should fulfill.
It might be more prudent to start building your company with contractors. However, you must be careful not to abuse workers on contractual status, nor misclassify employees as such in an attempt to avoid paying taxes and benefits.
An established business can run smoothly with a mixture of both types. But you have to ensure that they are compensated accordingly and that you report tax information correctly.
Employee classification: exempt vs. non-exempt
If your staff consists of employees, you need to provide them with benefits, as well as withhold and report relevant income, healthcare, and social security taxes, besides meeting other responsibilities. You also need to properly classify employees into two categories: exempt and non-exempt.
The latter are not exempt from the requirements of the Fair Labor Standards Act, which states that non-exempt workers must receive at least the minimum wage and overtime pay of not less than one-and-a-half times their hourly rate for any hours worked beyond 40 weekly. While exempt employees do not enjoy these protections, they do receive fixed salaries instead of an hourly wage.
Clarify the qualifications for each category with your CPA firm to avoid misclassifying employees and having to pay overtime back wages to whom such are due.
Payroll schedules
Payroll schedule is a third key factor that can affect business operations, employee morale, and cash flow. You may pay your workers weekly, biweekly, or monthly, and each option has a unique impact on accounting. For example, most people might prefer receiving money biweekly, but bookkeeping and benefit calendars usually run on a monthly basis. You and your CPA firm will have more details to manage.
Evan Hutcheson, CPA, LLC in Nashville can help you answer any more questions you might have about these payroll considerations.
Sources:
5 Common Payroll Mistakes Small Businesses Make, Gusto.com
How to Avoid the Five Biggest Payroll Mistakes Small Businesses Make, iBusinessSolutions.com
Virtual Services of an Outsourced Accounting Firm: Your Questions, Answered
