Real Small Business
Every aspect of small business management has a lexicon of terms. Payroll is no exception.
Regardless of the payroll solution you choose, it is important to understand these terms so you can manage your provider effectively.
Employers are required to pay taxes on the services that are offered to and provided by their employees. The bulk of these taxes are commonly referred to as "payroll taxes" and consist of:
The Federal government, most states, and some local governments require employers to withhold income tax from their employees' pay.
Social Security and Medicare
Sometimes referred to as FICA (Federal Insurance Contributions Act). Employers are required to withhold and deposit these taxes from employees' paychecks, and also make matching contributions.
Employers pay Federal Unemployment Tax (FUTA) to the unemployment insurance system. The amount owed is based on the business' total employee wages. Many states also have their own unemployment taxes.
Tax Deposit Accounts
Employers are required to deposit income tax and FICA withholdings to an authorized financial institution or Federal Reserve Bank. Most businesses are required to make monthly deposits, although some contribute on a semi-weekly basis. Your contributions are deposited through electronic deposits or through Federal Tax Deposit (FTD) coupons. Check with the IRS to determine which payment schedule and deposit method is required of your business.
Cafeteria plans, also called "flexible benefit" plans, allow employees to set aside pre-tax dollars to pay for certain benefits such as medical and dependent care assistance.
These plans can be beneficial for both employers and employees: employers who carry such plans will pay less FICA and FUTA taxes, and employees will pay less FICA taxes because their amount of taxable income is reduced. Additional benefits that may be offered as part of a cafeteria plan include group life insurance and disability insurance.
Depending on the benefits you offer employees, your company may also need to track the following items as part of payroll management:
Insurance and other benefits
Health coverage, dental insurance, life insurance and other benefits to which employees may contribute.
Stock option or equity plans offered to employees.
Pre-tax dollars set aside by employees and employers for retirement purposes.
Company-sponsored training and/or degree advancement.
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Small Business Guide
- Starting Up Your Business
- Structuring The Business
- Creating a Business Plan
- Your Company's Public Relations
- Effective Competitive Analysis
- Managing Purchasing to Maximize Cash Flow
- Bidding Basics
- Hiring Staff
- Small Business Insurance
- Small Business Resources
- Vacations and Taking Time Off
- Preparing for Tax Season
- Cash Flow
- Your Company's Credit
- Getting Funding
- Employee Compensation