High Payroll Costs
2005 - America’s 156 million wage earners, and the
payroll professionals that pay them, contribute, collect,
report, and deposit approximately $1.4 trillion through
the payroll withholding system, or 71% of the annual revenue
of the U.S. Treasury. Ensuring that the correct taxes, withholdings,
and salaries are calculated each pay period can be costly
for a small business owner.
or outsourced payroll process can streamline a business
and create savings equal to 10% to 15% of its payroll expenses.
Payroll costs rose 3.5% from 2003 to 2004, according to
a recent study by the American Payroll Association. That
can translate into thousands of dollars needlessly being
spent. Even in a company with less than 10 employees, the
time and money spent calculating, processing, producing,
and distributing payroll can be reallocated to more cost-effective
more different ways pay rates are calculated, the more a
company is left at risk for incorrect calculations. Streamlining
the payroll process, with fewer ways to achieve a pay rate
(e.g., overtime, shift differentials), helps a business
see the advantages in year-end tax payments. Employees also
report increased satisfaction because there are fewer surprises
and fewer complicated calculations.
located in towns near state borders have additional tax
issues for employees that live out of state. Considerations
must be made for paying taxes to more than one state and
for remaining in compliance with each state’s tax
states have an unemployment employee withholding tax. The
state’s department of labor rates a business’
unemployment experience, and this rating plays a crucial
role in the total amount of taxes owed at the end of each
year. Calculating these taxes incorrectly can result in
a higher-than-expected tax bill. The state also leaves the
collection of these taxes up to the employer, which is responsible
for the final payment of both the employee and the company
portions of the tax.
example, Bob’s Wholesale has an employer tax (X%)
wage base for each state in which his employees reside ($XX,000).
For the first year, Bob’s will pay 1% (unemployment
rate) of the wage base in taxes. This tax is paid for every
employee hired within that year. If Bob’s lays off
an employee and that employee collects unemployment, the
unemployment rate can increase to 2% or 3%, up to the maximum
wage base amount. The changes from year to year are based
on the total number of employees that were terminated or
laid off, and affect the final tax due. The issue arises
from the bounce-back from unemployment taxes that Bob’s
Wholesale won’t see reflected in its immediate tax
payments. This increase will be reported in a later tax
bill, sometimes as much as two or three years later. Bob’s
Wholesale may be blindsided by a tax bill that charges two
or three times the amount originally collected in withholding
taxes from its employees, and the company will be liable
for the entire amount due.
Labor Costs and Expenses
such as cash flow summaries, employee general data reports,
employee wage detail summaries, check reports, and earnings
statements can help a business manage its labor costs and
employee expenses. A business can also use information from
these reports to make future plans for hiring, marketing,
and anticipating shifts in its workforce.
payrolls offer cost benefits to both the business and the
employee. By creating a paperless paycheck (online electronic
paystubs can be made available to employees), the money
is transferred directly into the employee’s checking
or savings account on or before the scheduled pay date,
making personal bill-paying, saving, and budgeting easier.
Other benefits include a reduction in exposure to check
fraud, and enhanced employee convenience (i.e., no more
waiting on line at the bank on payday).
rates are changing all the time. Many websites post current
information, but without knowing what to do with that information,
a business might pay considerably more in year-end tax payments,
or even two or three years later, when penalties and interest
are compounding and accruing continuously until the issues
more information about payroll compliance issues and how
they affect a business’ bottom line, contact Fiducial
at 866-FIDUCIAL, or www.fiducial.com.