Crucial Payroll Issues Retailers

Crucial Payroll Issues Retailers Should Be Aware of to Remain Compliant

If you’re a manager working in retail, then you know how important and complex complying with payroll is.

There’s a lot more that goes into it than signing paychecks, including legislation and taxes. You need to make sure you’re respecting labor laws and with all the complexity, it’s easy to make payroll mistakes.

But while payroll isn’t simple, you can avoid errors. Save yourself the time and money you could spend on other retail tasks. Keep reading to learn more about payroll and issues to avoid.

Understanding Payroll

What Is It?

“Payroll is the total of all compensation a business must pay to its employees for a set period of time or on a given date.” – Investopedia

Payroll includes many factors such as:

  • Bonuses
  • Salaries
  • Deductions
  • Wages
  • Taxes
  • Net pay

It’s also likely to be the largest expense in your retail business, due to employee wages.

Both employers and employees have specific taxes they must pay. These come out of employee wages and they include:

  • Pay-As-You-Earn (PAYE)
  • Payroll taxes split between the employee and employer according to the IRS
    • Medicare (2.9%)
    • Social Security (12.4%)
  • Federal and state income taxes
  • Unemployment taxes
  • Disability taxes
  • State job-training taxes (in some cases)

Tax chart

The payroll process involves:

  • Providing employees with tax forms to know which ones to deduct from each worker’s wages
  • Filing said forms with the relevant authorities
  • Figuring out when to pay your employees:
    • Monthly
    • Biweekly (every other Friday)
    • Weekly
    • Semimonthly (on the 1st and 15th of every month)
  • Figuring out how to pay your employees:
    • Direct deposit
    • Check
    • Money order
    • Cash
    • Shelter, food, utilities that follow minimum wage laws

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Why Is It Important?

Payroll is important because it affects your company’s bottom line in a significant way. It also carries important ethical and legal implications.

A precise payroll allows your business to pay employees on time and avoid penalties. Because missing payments could lead to you disbursing more than full wages. These consequences include:

  • Criminal penalties
  • Civil penalties
  • Waiting-time penalties
  • Fees for the business’ attorney
  • Liquidated damages

You can find all the information you need about wages and standards in the Fair Labor Standards Act (FLSA).

Payroll is also important because it lets you know how your business is doing. This provides a necessary assessment of whether you’re making a profit or a loss. This, in turn, helps you make the right decisions if your wage expenses are costing the business too much. Decisions such as which, if any, layoffs you should make.

Setting Up Payroll

There are four main ways of setting up a payroll system. You can:

  • Hire a payroll expert into your business, like an accountant who will handle it for you. Although this comes at an added cost and you have less control over your payroll.
  • Handle payroll yourself by hand, which gives you full control but takes a lot of time.
  • Use payroll software, which speeds up the whole process but requires software knowledge.
  • Outsource payroll, which eases your workload but also costs more than other options.

Whichever way you choose to set up your system, you’ll need to:

  • Present employees with different payment methods to choose from.
  • Have them complete a W-4 form to specify the right tax withholdings.
  • Fill out an I-9 form to confirm your employees’ legal status.
  • Declare every employee’s wages and withholdings to the tax authorities on time.

To set up your own payroll system, you need to:

  • Get an employer ID number (EIN) from the IRS.
  • Understand the difference between a contractor and an employee.
  • Keep records of every employee for the required amount of time.
  • Get a business ID if the state you’re in asks for one.
  • Decide on which regular basis you’ll pay employees.

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Payroll Mistakes to Avoid

Not Paying on Time

Do not run your payroll late. Not only is it your obligation to pay employees, but you’re also required to pay them on time. Many states and authorities regulate when and how often you must pay employees.

They also determine when you should give a former employee their final check once they’ve left the company.

In California, for example, employers have to pay most employee wages at least twice a month. They also need to specify the regular place, time, and date of payment in advance.

Don’t forget to file your taxes on time either, or you risk facing penalties.

Federal income and FICA taxes, for example, have specific dates:

  • Quarter 1: April 30
  • Quarter 2: July 31
  • Quarter 3: October 31
  • Quarter 4: January 31
Tax time word written over alarm clock on chalkboard
Image from: freepik

Forgetting About Overtime

If an employee works beyond 40 hours per week, then you owe them overtime pay.

According to the Fair Labor Standards Act (FLSA):

“If more than 40 hours are worked, at least one and one-half times the regular rate for each hour over 40 is due.”

Say your employee earns $10 an hour for the hours they’re supposed to work. Then if they work beyond 40 hours in a week, you as the employer will have to pay them $15 for every overtime hour.

If they work less than 40 hours one week and then more than 40 hours the next, you cannot average it out. Once an employee works more than 40 hours in a single week, you have to pay for overtime.

Figuring out the right amounts can become complicated when considering things like:

  • Added overtime laws (daily overtime or double time)
  • Performance bonuses

But not getting it right can lead to employees complaining and productivity decreasing.

Confusing Employees for Contractors

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It’s important not to get employees and independent contractors mixed up. They can impact your payroll in different ways and the methods of payment can also differ.

For example, you need to withhold taxes from employees but not from contractors. You also need to pay an unemployment tax on an employee’s wages, but not on a contractor’s.

One is a contractor if they work in an independent trade offering services to the general public.

“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. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.” – The IRS

One is your employee if you decide how they work and what they work on.

“Under common-law rules, 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.” – The IRS

Not Respecting Equal Pay

The Equal Pay Act (EPA) which passed in 1963, states that men and women should receive equal pay for equal work. It’s an amendment to the FLSA and it covers all workers. The act applies to federal, state, and local governments as well as most businesses.

The employee duties matter more than job titles or descriptions. If a job requires the same levels of responsibility, effort, and skill, then equal pay applies.

Equal pay means paying employees at the same rate, but not the same final amount. That’s because the rate depends on productivity. If one employee earns more than another because they’re more productive, that’s not a violation.

But equal pay isn’t only limited to wages. It also applies to benefits and other forms of compensation such as:

  • Bonuses
  • Vacation time
  • Insurance (both life and health)
  • Pensions or retirement plans
  • Profit-sharing
  • Pre-tax medical

Remaining Compliant the Easy Way

With retailers having part-time, full-time, and seasonal workers, payroll gets even more complicated.

But you need to stay on top of things and get it right. You want to avoid penalties and disgruntled employees. Especially when “78 percent of U.S. workers live paycheck to paycheck,” according to CareerBuilder in 2017. You don’t want to put your business in danger of collapsing.

There is an easy way to remain compliant with your payroll, and that is by using World Manager.

Book your own customized Operational Compliance demo today. See how World Manager makes your payroll and other business tasks easier.

Disclaimer: This information is meant to provide general guidelines and should be used as a reference. It may not take into account all relevant local, state or federal laws and is not a legal document. Neither the author nor World Manager will assume any legal liability that may arise from the use of this information.

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