Pay your workers PROPERLY
You cannot do everything yourself. You need to hire someone to scale your business.
Whether it’s administrative, sales, marketing, operations, consulting, legal, accounting or other outside labor, you need people to do tasks for your business that you are unable to do either due to your own lack of time or skill.
Asking for help is not a sign of weakness; it’s a sign of intelligence.
Just because you CAN do something by yourself, it doesn’t mean that you SHOULD. The first thing to determine is what is the most effective way to spend your time. Where can you add the most VALUE?
A doctor, for example, should spend the majority of his or her time on treating patients, not on doing the administration work and billing of insurance companies. You can hire an office manager or insurance biller to do these administrative tasks so you can focus on the highest and best use of your time, which is the practice of medicine.
The faster you can hire other people to accomplish tasks that are sucking your time away from your optimal work, the better.
The question then becomes how to pay these workers. The first determination for any worker is going to be – are they an EMPLOYEE or a CONTRACTOR?
EMPLOYEES
For those working either part or full-time in your office, these are typically going to be considered employees, since you dictate to them when and where and how they work.
According to the IRS, “anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”
For these individuals, you need to request that they fill out both a
· W4 (Employee’s Withholding Certificate) and an
· I-9 (Employment Eligibility Verification)
before they start working. At the end of they year, you need to provide employee(s) with a W2, which summarizes the pay they received, and the taxes withheld.
The terms, “salary” or “wages,” are in reference to employment, NOT for an independent contractor.
Employers need to withhold payroll taxes from their employees’ payments and are required to pay employer-side payroll taxes, typically equaling 7.65% of the total pay. These are:
· 6.2% Social security
· 1.45% Medicare
So, for an employee that you is paid $100,000, the employer needs to actually go out of pocket at least $107,650.
There are also fees associated with running payroll, such as payroll processing fees and various state and local payroll taxes, which are usually minimal, but still very important to avoid harsh penalties.
There are other considerations for employees, such as providing proper meal breaks and payment of overtime, and this is why most businesses utilize a payroll processing company (such as Gusto, ADP or Paychex) to ensure that they are in compliance with federal and state employment laws.
INDEPENDENT CONTRACTOR
If a worker is truly an “outside contractor” providing services, they can be paid via 1099.
According to IRS:
“The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”
Before you hire anyone to do work for you, you need to request that they fill out a W9. The W9 collects information on the worker, including their:
· name or name of their business
· Address
· Social Security number for an induvial or EIN (employer identification number) for a business
and is signed by the worker under penalty of perjury.
At the end of the year, by January 31st of the following year, you need to file and provide to the contractor and the IRS a Form 1099-NEC for anyone that you paid more than $600 annually.
The 1099 shows the total amount paid to the contractor throughout the year. The IRS gets a copy of this “informational return” to ensure that the individual reports and pays tax on this income.
This requirement is one of the many reasons why it is vital to keep proper bookkeeping and accounting records of who was paid, when they were paid, and how much.
There is a loophole that allows a business to avoid filing a 1099NEC, and that is if the payments were made to a CORPORATION (or an LLC treated as a corporation). This loophole does not apply to attorneys or for medical services.
Regardless, the payer is still required to collect a W9. The W9 is NOT filed with the IRS. It is an internal document needed in case of an audit.
If a business fails to file a form 1099 or files it late, they can be subject to harsh penalties and additional taxes.
Aside from independent contractors who receive Form 1099-NEC, there are requirements to file 1099-MISC for other types of expenses, such as Rents paid, payments to attorneys, medical and health care payments.
If you have any questions about which forms to file and when they are due, contact your tax professional for advice.
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