039 What’s Up With Payroll? Small Business Compliance & Documentation for a Workforce

Tune into Money Through Ease this week for a crash course on payroll and compliance. Why is documentation so important when you hire a workforce in your small business? Well, laws and regulations say that you should be paying your workers a certain way and on time. In order to develop trust in that employer-employee relationship, payroll compliance and administering benefits is how.

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Hey everybody, welcome to "Money Through Ease." I'm your host, Regan Bashara. Let's get started with this week's episode. I wanted to read a comment that I got from a listener this week. I wanted to share it with you, get your thoughts on it, and share with you what my thoughts on it are. So, this person left me a comment when I was trying to promote my podcast, and I'm not sure yet which episode they listened to, but apparently, it sparked some big feelings. So, Walter left me this comment on Facebook: “I literally made it through one minute and 58 seconds, only to find you bring a false narrative about white supremacy." "Folks like you are destructive and have no future as a reasonable voice to most listeners." That being said, most people understand history because they were taught the correct and true version of history before the public school system decided about 10 years ago to start lying for political reasons. "You should keep politics out of this, because if you really felt this way, Karen, you would give back everything you stole from the black and brown communities. You ought to be ashamed.” Walter, thank you so much for leaving me this comment. I've thought about your advice and your suggestions, and I've decided I'm not going to take them. I run my podcast the way I want to. I like the content that I talk about. I feel like I have a pretty good idea of what financial systems this country has, what they were founded on, who they were founded by – which would be, you know, people who were enslaving other people and human traffickers – and they set up financial systems to benefit themselves. That would be rich, white, landowning men and nobody else. And that is the truth of our country. That is the truth of our economy and all of the financial systems that were set up in support of that economy. So thanks so much. And just in case you forgot how to read, my name is spelled R-E-G-A-N, not K-a-r-e-n. But thank you so much for your comment. And if you want to leave me a review like this one, dear listener, feel free. I love hearing from my adoring fans. So this week, we're talking about payroll and what it is and why it's so important to pay attention to compliance. If you're a small business owner who has hired other people and you're paying them on payroll, then I'm going to talk about the kind of documentation that I do for my clients and the compliance that I do for them when it comes to running their payroll when they've hired a workforce. So the previous episode last week, if you've already listened to it, that was mainly about documentation for your procedures and for your receipts and everything that you do in your business. Payroll is definitely a part of that. But I wanted to devote an entire episode to this because it is so important to me that I document what I do for my clients, especially when it comes to payroll. Payroll is a big deal for small business owners. When you hire employees and you contract with them and basically say, "I'll pay you this much per hour" or "I'll pay you this salary in order to work in my business," that is a huge deal. And there are so many labor laws and regulations about how you should be paying employees, when you should be paying employees, how much, and when they can work for you. Do you need to provide them breaks? How often can they work for you in a week? There are all sorts of regulations that were put into place through the work of labor unions and strikers who demanded better working conditions in the United States and demanded these laws be put into place to protect the workforce. So, you know, power to the people – like we love union solidarity here on this pod. And since we have so many laws and regulations about working and being an employer and being an employee in somebody else's business, I wanted to talk specifically about that compliance, and I wanted to share with you my process for documentation for my clients that have hired me to do their payroll. So yes, payroll is a service that I provide if you are a monthly bookkeeping client. I do not just do payroll as a one-off for clients. If you're wanting me to do your payroll, then we do need to have a monthly bookkeeping engagement, which is where I'm doing the bookkeeping every single month for your business – reconciling and categorizing your transactions, and then sending your reports every month. So payroll is kind of an add-on service, but it goes hand in hand with the bookkeeping. You cannot have payroll really if you don't have a system for bookkeeping. So what I do for my clients that have employees? Well, at least most of them, is that I keep track of all of that for them. And really, they instruct me on who is working for them, how much they're paying them. But other than that, I'm handling all of that paperwork. I'm handling the actual running of the payroll. We're also going to talk about payroll taxes, which are very important. So what is payroll? When you hire people to work in your business, you've hired a workforce and you have promised to pay them to work in your business. And we've done a couple of episodes about hiring a workforce. We've done an episode about who is an employee versus who is an independent contractor. So if you have questions about that, like classifying employees or how to get started if you want to hire employees, you can definitely go listen to those episodes further back in the feed and find them. But payroll is something that you have to do when you've decided to hire employees to work in your business. You're going to pay them either an hourly rate, or you could pay them a salary, or you could just pay them commission. There are many different ways to pay people. But the real difference between an employee and an independent contractor is that you're giving the employee the tools and equipment that they need in order to do the job that you've hired them to do. And since this classifies them as an employee, you have to withhold taxes from their pay. So this includes federal, local, and state regulations and laws stating that taxes have to be withheld from your employees' pay. That's what payroll is, and here's what I do for my clients when they hire me to run their payroll. The first thing, obviously, is to manage their payroll information and their employees' information. There are different accounts that you need to set up with the federal and state and local agencies. If you hire employees, I manage all of that information for my clients who have hired me to do their payroll. This means that I not only keep their employee paperwork and documentation together in a way that is referenceable, but I also keep their accounts active with the federal, state, and local agencies that they're required to have an account with when they have payroll. So this can mean setting up a way to pay the federal income taxes through this website called eftps. I manage that account for them. And then at the state level, usually we have a state income tax. In Louisiana, we definitely do. There are a couple of states that do not have a state income tax like Texas and Florida, but for the most part, most states have an income tax. So you have to have an account with your state in order to file and pay those taxes. Additionally, most states also have an unemployment system or insurance or tax that needs to be paid by the business or by the employee. I manage that as well. And beyond that, I'm the one running payroll for my clients. Now, there are things that the client has to do. They do have to actually get me the information from their employees about how much they're going to pay them. But they also have to send me hours every pay period or pay details if they're on commission. My clients do need to send me information about payroll. So there is some part of this that is a thing they need to do. This is not just giving up the whole task of payroll to somebody else, a third-party contractor. There are still things that you do need to do when you're the small business owner, when you're the employer. But when I run payroll, I'm taking the hours that my clients send me for their employees or their salary information, their pay information. I also handle paid time off, so I'm administering whatever paid time off policy you have for your business and for your employees. Now, it's very important that you have a paid time off or PTO policy in writing, and you need to provide this policy to your employees once they're hired so that they can read it and sign it, acknowledging that they understand the policy. You cannot just tell people, "Oh, I'll pay you for this time off" or whatever and have a verbal agreement. It needs to be in writing so that I can administer that for you if I'm running your payroll. Also, so that your employees understand the expectations of when and how they can take time off. If somebody has paid time off, but it doesn't start accruing until they've been working for you for 90 days, maybe you have a probationary period. So, you know, when you hire somebody, they don't start accruing paid time off hours until after 90 days. You might have rules about when they can take time off and still get paid. But you also want to have a policy within that paid time off policy that explains what happens if they don't have hours accrued. That would mean that you wouldn't pay them if they needed to take time off and didn't have any PTO hours accrued. You wouldn't pay them, right? All of this needs to be in writing, so I help my clients develop a policy. And then I help them administer it, which just means that every time I run payroll, if someone took PTO and their manager approved it, then I need to track that in the payroll system. Another thing I do is track business-paid holidays. Some businesses will pay if it's a federal holiday or a bank holiday. That means you're giving your employees the day off, but you're also still going to pay them, which is great. It's a great benefit to have for your business and for your employees and your workforce. But some people don't do that. So, again, this is going into all of your policies and documentation for your workforce, and this needs to be communicated with people. If you're going to give somebody a paid holiday off, you need to tell them that, right? So that they don't show up to work. But also communicate that you will pay them. You could have it that they get federal holidays, bank holidays off, so they don't have to come in and work, but you're not going to pay them. It's not a requirement that you pay people for holidays, but that's something that you provide as a benefit. It needs to be communicated with your employees. And that's where having good policy and good documentation comes into the chat, right? Another thing that I do is handle garnishments and other deductions for my clients and their employees. It may be the case that an employee has a garnishment for whatever reason – that could be child support, that could be a judgment against them, collections agencies that go to the courts and garnish wages, whatever the case is. That's something that gets handled under my payroll services for my clients. This way, we're making sure that we're complying with whatever judgments or garnishments the local authorities have set for an employee, ensuring it gets paid on time. Because if you're an employer and you have an employee who has garnishments, and you don't withhold those garnishments and you don't pay the appropriate person what was withheld from your employee's pay, you could actually be liable as the business owner. So you are part of that equation when it comes to handling employee garnishments and deductions. That's part of the compliance that I offer – making sure that you're doing what you're supposed to be doing and that you're not going to be penalized or held liable for something that your employees need to do. I also administer the deductions for retirement plans and health and dental insurance plans. So, anything – any sort of benefits that you want to offer to your workforce, to your employees? I administer that for you, which just means that I'm tracking it. I help you get it set up. I help to make those deductions, and then I help either make the payments to the retirement plan or insurance for you, or make sure that whoever needs to know about it gets the report showing what the deductions are. So, this is a lot of stuff. It's a lot that goes into payroll, but that's why you hire a third-party person or have a software or an app that's running your payroll, automating all of this stuff. And now, finally, at the end of what I do for my clients, the most important part in my opinion is payroll tax. Payroll taxes are a liability to your business. When you have contracted with an employee and you tell them, "I'm going to pay you this much every two weeks, blah blah blah," and then the government says that you need to withhold taxes from their pay, that is a liability to your business. Because you've withheld wages that your employee has already earned, and so that money is still sitting in your account. You withhold a part of their pay. It's sitting in your account, which creates a liability for your business. That cash, that money, sitting in your account is not your money. It is wages – earnings that your employee has already earned and accrued, and you're holding it on their behalf to pay their taxes for them. This is why payroll taxes are so important. This is why it's such a big deal to stay on top of that from the very beginning, for sure. With payroll, staying on top of payroll taxes is crucial because if you don't, it can quickly snowball. And I think my Roomba is going to go do its thing – now, anyways. So, payroll taxes have two parts to it. Essentially, there are the payroll tax filings that need to be done, which is where you're reporting information to the governing authority that levied the tax. So we've got federal taxes, state taxes. Like I said, we've got state unemployment insurance taxes. All of these agencies and governing authorities need you to report information about what you paid your people and what you withheld from them. I handle those filings – that's payroll tax filings. We have quarterly filings that we do. We have annual filings. Annual filings include things like sending your W-2s out to people that worked for you that year. That's part of payroll taxes. And then we have payroll tax payments. So like I said, when you're withholding pay from people – from your employees, you need to pay that, right? So that payment, that remittance, needs to be done on a schedule. If you pay payroll taxes late, you could be penalized for that. And there are heavy penalties and interest associated with late payroll tax payments and filings. So once again, payments can happen on a schedule with payroll. I do recommend that people pay their federal income taxes and their FICA taxes (Social Security and Medicare tax) when they run payroll. Go ahead and make those federal payments at the same time so that you don't fall behind on that. That's the 941 payment. I make it with payroll for all of my clients that I do payroll for. But there are also quarterly payments that need to be made. For instance, usually the state income taxes don't need to be paid except quarterly, and then annually you've got payments as well. You have your federal unemployment annual payment that is usually made. Some people pay their federal unemployment quarterly, but all of this is based on a schedule set by those taxing authorities. So that's part of my job – that compliance – to make sure that you're following those regulations, especially when it comes to the filing and payment of your employees' taxes. Because, once again, if you're withholding from their pay what they've already earned in wages, that means you're responsible for making that payment of those taxes on your employees' behalf, which is why it's such a big deal. All of this goes towards compliance, and I'm making sure that you're paying your employees and following all federal and local labor regulations and laws. Now we're going to take a quick break and we'll be right back. Welcome back. Let's talk about documentation and why documentation is actually such a big part of payroll and compliance. Documentation is a huge part of payroll, especially if you have someone like me who's a third-party contractor working for my clients to do payroll on their behalf. Even if you hire somebody else to do your payroll for you, you as the business owner, you as the employer, are still responsible for making sure that your payroll taxes, filings, and all of that compliance that goes along with it gets done. You are ultimately responsible for the timely filing and payment of payroll taxes, for any garnishments, for any retirement account payments that need to be made on behalf of your employees. So documentation is a big part because when I'm doing the work for you, everything I do has to be documented. If you were to ever come back and ask, "Hey, what do we pay this person for on this pay date or this pay period?" I need to have documentation where I can go back and answer those questions for you, which is why I keep copies of everything. I insist that all the communications I have with my clients, especially regarding payroll, need to be in writing. If you have a request of me, if you need me to do something, or you send me payroll hours, all of that needs to be usually in an email form. I do have some clients that have a time clock software that I can log into as well and pull payroll hours, but I still need my clients to say, "Hey, payroll is approved" because I don't know what's going on in their business day-to-day. They may have an employee who missed a clock-out, and I might miss that when I'm reviewing it. So I do need my clients' approval. I need it to be in writing because all communications in writing, I am able to go back and look at that documentation later. This protects me. This protects my clients. This contributes to compliance and ensures that the job is getting done the way it should be, the way it needs to be. So, I have backup documentation for what I process, when I process it, and why. The kinds of things that I keep as far as documentation for payroll specifically are pay stubs for the employees. These are payroll reports that provide a summary or an overview of who was paid, how much they were paid, and what taxes were withheld, among other details. I also keep confirmation numbers – I actually print the confirmation page every time I run payroll and perform the tax filings. So, if I file payroll taxes on behalf of my clients' businesses, if I make payments towards their tax liabilities, I keep the confirmations of all that and I provide them to my clients. One of the ways that bookkeepers can unfortunately take advantage of businesses and steal money from them is through payroll tax payments. There are bookkeepers who might say, "Yeah, I paid those taxes, but I moved the money from your account to my personal account and paid the taxes out of my account." Absolutely not. That's not how it works. I never take money out of my clients' accounts and put it in my account to pay something for them. They either pay for something directly, or they reimburse me for something I've already paid, like their QuickBooks Online subscription. So when I make payments on behalf of people's businesses for their payroll taxes, what I really mean is that I schedule the payment from their account on their behalf and then I provide them with the documentation and confirmation that it was paid from their account and to the correct tax authority. Documentation is so vital to the compliance aspect of it, but it also protects me from liability because I'm showing, "Yes, I'm not messing with your money. This is your money. This is what you need to pay. Here's when it got paid from your account." And then the client has that documentation, that way to go back and check the work if they ever wanted to and have peace of mind that anything I do for them is backed by records. My clients know before we even start payroll services what I will and won't do for them. All of this is outlined in their engagement letter. It's all spelled out for them – what I do, down to the date that I do everything, especially when it comes to payroll, because it is so deadline-driven; paydays are a deadline. Payroll tax payments have to be paid on the deadline. Payroll filings have to be done by a deadline. Everything is deadline-driven. So, in the engagement letter that my clients signed with me, if I'm doing payroll for them, I'm telling them when they can expect that work to be done, when I'll schedule a payroll tax payment out of their account. It's the same way every time, so that it's something they can expect and can look for and check up on. I also go over the expectations with my clients of what I need from them. I talked about how they do have to send me things; I can't just pull numbers out of thin air to pay people. I need my clients' participation, and I expect them to approve hours and send them to me by a certain deadline so that I have time to process the payroll and handle all the necessary steps. So, my clients have expectations of me, but I also have expectations or information that I need from them in order to do my job. I also have a system to organize employee information so that things are easily referenceable. That means we can pull up anybody's information at any point, see what they've got going on – whether it's garnishments, health insurance, or retirement accounts. All of it goes in the same place, so that everybody's organized and we can access somebody's information if needed. That's why documentation is so important. I wanted to apply that to a real-life example like payroll, because we did talk about the importance of documentation in your business, creating procedures and processes that you and your employees can follow, and keeping track of projects and tasks that need to be completed. But for me, it's paramount that the work I do for my clients is transparent. They can check up on me to ensure that the work I'm doing is correct, that I'm following through on what I say I'll do and when I say I'll do it. It's all about trust. The relationship I build with my clients revolves around them giving me access to their business, sharing sensitive information that I must keep confidential. And if I say I'm going to do something for them, they need to have a way to verify that I'm actually fulfilling my commitments. This is why documentation is particularly vital, especially in the realm of payroll compliance, where accuracy and trust are essential. So, if you need help with payroll, or perhaps you're considering hiring a workforce and want to understand the intricacies involved, I encourage you to schedule a consultation with me. You can find the link in the show notes, or visit my website alleaseaccounting.com to set up a complimentary consultation. Let's discuss your situation – whether you already have employees, are planning to hire, or are just exploring your options. We can go over all the requirements and ways to stay compliant, because payroll is indeed a significant undertaking. As always, please share this podcast with at least one other person you know. Share this episode with them and help me reach more business owners like yourself. Additional free resources are available on my website, so be sure to subscribe to my email list. I send out valuable content. Lastly, consider leaving a rating or review for this episode. Let me know your thoughts. And if you have strong opinions, just like Walter did, and you want to share your thoughts with me, you can leave a comment on my social media as well. Alright, until next week – take care! Goodbye.