Small business owners know a unique set of challenges await them in the financial world. Special rules and regulations are in place for businesses with less than a certain number of employees, and different tax brackets further classify companies into categories, each with their own rules and stipulations. It is a lonely world with stiff penalties for breaking the rules. Avoid fines by reviewing these mistakes small businesses frequently make.
Failure to Pay Overtime. Companies classify employees as either exempt or nonexempt. Exempt criteria require that an employee be salaried and has an annual salary of more than $23,600 (or $33,280 in California). Most others employees are nonexempt, which means they are entitled to one and a half times their regular rate of pay for time worked in excess of 40-hours a week (or 8-hours a day in California). Keep track of these classifications and obey state and federal pay regulations! Do not mislabel employees as exempt to avoid paying. Penalties include paying unpaid wages and payroll taxes with interest and penalties. Criminal charges may apply.
Hiring Just Anyone. To select the proper candidate, evaluate the role that needs to be filled and determine the level of experience needed to do the job properly. What kind of characteristics would this employee have? Are there educational requirements? Is a criminal record a deal breaker? Don’t hire the wrong person in a hurry just because the company is short-staffed. Know who you want to hire before applicants ever step foot through the door and do not compromise.
Breaching Confidentiality. Many employers assume they can use all the information employees bring with them, but the truth is some industry-specific information may be confidential. An employee coming from a competitor may not legally be allowed to duplicate code or contact old clients without breaching their contract. Similarly, it should be worked into your company’s employee agreement (along with the official offer of employment) that any confidential information does not leave the building – even if the employee decides to progress their career elsewhere.
Equity Compensation. It may be a smart idea to allow employees the opportunity to purchase business stock as part of their long-term investment in the company. Stocks cannot be sold for any price that is less than fair market value, so it is important to follow state and federal tax regulations to avoid expensive penalties. Fair market value of these stocks is details in Internal Revenue Code Section 409A, which is updated frequently and becomes increasingly complicated with each revision.
Payroll Taxes. An important part of payroll is processing and paying payroll taxes on time. Withholding taxes from payroll is a complicated process and needs to be done accurately. Payroll taxes for both the employee and the employer must be remitted to the appropriate governmental agencies by their due dates. Business owners should relieve this burden by using a payroll service which will handle the professional tax management, like that offered by Padgett Payroll Services®. Outside payroll services are a needed service for businesses who want to focus their energy on the company itself instead of constantly thinking about tax codes and regulations.
Save time and focus your energy on your business by using a professional payroll service! It takes a great deal of time to manage business finances, but arranging things properly from the start can save a great deal of money, time and stress in the long run.