by Joe Heinrich, SCORE Seattle
Congratulations!! You’ve grown your small business so much that you need help, and so you’ve hired your first employee. Now you’re confronted with the task of paying that employee properly in accordance with IRS regulations and State of Washington statutes, along with making payments to taxing authorities and reporting to them periodically. And now you’re stomach’s churning!!
To correctly pay an employee in Washington, the employer needs to deduct the following taxes from the employee’s pay and report and remit timely these amounts to the relative taxing authorities:
- Social Security Tax and Medicare Tax (just the employee’s share)
- Federal Income Tax
- Washington Labor & Industry Premiums (just the employee’s share)
- Washington Paid Family & Medical Leave Tax (just the employee’s share)
There may be other withholdings from the employee’s pay, such as garnishments for child support, contributions to a retirement plan, donations, and the like.
In addition, there are specific taxes that the employer needs to report on and pay, which are:
- Social Security Tax and Medicare Tax (employer’s share)
- Federal Unemployment Tax
- Washington Labor & Industry Premiums (employer’s share)
- Washington Unemployment Tax
- Washington Paid Family & Medical Leave Tax (just the employer’s share if the business has over 50 employees)
Lastly, the employer needs to remit the amount of net pay to the employee, either in the form of a direct deposit to the employee’s bank account or a check. Add to all this changing tax laws and the possibility of errors, the payroll process in a small business is very, very complex.
What to do?
Normally, small business owners turn to either their outside bookkeeper, a payroll service or a payroll application to effectively “outsource” payroll. Of these three alternatives, the payroll application is often the most cost effective, having the lowest fee coupled with the fact that the time required of the business owner to run payroll is normally equivalent to using an outside bookkeeper or a payroll service.
The most popular and most highly rated payroll applications on the market today are the following:
Of these two, Gusto is the best, especially for Washington-based employers. Gusto is a cloud-hosted payroll application that is targeted to small businesses looking to manage their workforce’s core HR needs. The application has a solid set of payroll features, well-designed user interface, and automation capabilities.
Gusto is able to streamline and automate the calculation, payment, and submission of a company’s local, state and federal payroll taxes, ensuring compliance with year-end forms and taxation to avoid critical errors. In other words, Gusto will pay on the business’s behalf all the necessary taxes timely and do the payroll tax reporting on the business’s behalf. Pricing is $39/month, plus $6/month per employee.
To ensure that SCORE clients get set up on Gusto and use it properly, Joe Heinrich is willing to schedule a one-on-one meeting, which generally only takes one hour. Contact your mentor to set up a meeting with him if you need to run payroll, or want to switch to a better payroll system.
In addition, during the months of November and December 2019, SCORE Greater Seattle will be offering two low-priced workshops (only $10) on how to set up a business on Gusto and use it properly to pay employees. Watch for an email or click here to learn more about “Making Payroll Simple with Gusto!”