Admittedly, I skirted taking the more challenging mathematics courses throughout high school, undergrad, and grad school. I think I shot myself in the foot because basic math gets me feeling like “the big one is coming”. (#FredSanford) It becomes a whole ordeal and I become moody and dramatic. It’s just stressful as hell!
So, when we hired our first employee, and then a contractor, and then another employee, and so on, I found myself having mini panic attacks when it came time to filing taxes and payroll. It got to the point where our tax lawyer had to break things down like I never learned how to count beyond ten. We currently use QuickBooks, but when you’ve got only a couple employees (or yourself), that can be expensive. And, honestly, not necessary. I got away with not using QB for years using some free tools and maintaining a diligent schedule that allowed for me to check, re-check, then check the numbers one last time.
This website came in pretty hand, and free: http://www.paycheckcity.com/calculator/salary/
QB has their own free tool, as well.
See attached for an excel sheet that our tax lawyer provided to calculate payroll. It’ll also help with tax filing as well. This spreadsheet is not specific to Maryland, as it only has the current rates for Social Security (6.2%) & Medicare (1.45%). So you will need to have the numbers for Federal & State taxes. That’s where the above links will come in handy.
Always make sure that you are maintaining the most current exemptions for your employees, as these can change (by their request) at any time. I keep my state’s (MW507) & the Federal (W4) forms handy. It’s not uncommon for a person to change their filing. It’s also not uncommon to make mistakes, so I often reference those documents to confirm if someone is filing married, single, and the number of exemptions or allowances. And, depending on your State, income tax may not be collected. Do confirm your State’s guidelines to avoid any filing mistakes.
All of this changes if you have hired a contractor or freelancer. They file as a 1099, so while you don’t have to worry about calculations for each pay period, the headache will come at the end of the year. This is a good option for hiring those who don’t necessarily keep hours and have a bit of autonomy with their schedule and day-to-day tasks. For an example, when hiring a salesperson, you may offer payment per referral or sale. It may not necessarily be feasible to maintain an hourly or salaried rate, especially if their work isn’t best quantified by hours put in.
For keeping record of contractor payments, a simple spreadsheet with the date paid, amount, and check number should be sufficient.
Even if you are not involved with payroll, it’s incredibly helpful to have some cognizance of calculations and method as your employer may make mistakes on calculations that could result in owing taxes. Ultimately it is your responsibility to pay the government what it is due, and while your employer is liable, they won’t be helping you pay the IRS for a few miscalculations.
I may make this a two part post because monthly federal, quarterly withholding, sales & use, unemployment, etc all give me hypertension and I felt so incompetent (and still do) filing them all. I should also warn that I’m not an expert, so do check and double check with an accountant, any methodology you employ for payroll and tax preparation.
I’ll leave you with a bit of word (Matthew 22:19-2, NIV):
“Show me the coin used for paying the tax.” They brought him a denarius, and he asked them, “Whose image is this? And whose inscription?”
“Caesar’s,” they replied.
Then he said to them, “So give back to Caesar what is Caesar’s, and to God what is God’s.”
My point is even Jesus said to pay the Man what’s his, so do it right and stay encouraged!