Startup founders, as you are probably well aware, have to wear many hats. The amount of work you have to do before hiring just one employee is essentially a crash course in human resources. After your workers get their first paychecks, though, the obligations never seem to end. As a result, many small business owners let payroll tax responsibilities—like the ones we outline below—slip through the cracks.
1. Forgetting about the Florida Reemployment Tax.
Florida does not impose a state income tax on individuals, which is what entices many entrepreneurs to the Sunshine State in the first place. This doesn’t mean Florida businesses are exempt from paying anything in taxes to the state; the first $7,000 an employee makes per year is subject to the Florida reemployment tax. The initial rate is 2.7 percent of the first $7,000. Employers are responsible for the reemployment tax, which gets deposited into the Unemployment Compensation Trust Fund.
2. Misclassifying workers.
The interest in worker misclassification has arguably never been higher. Companies that remunerate workers for labor must ensure they are compensating those workers as either an employee or independent contractor. Paying a worker as an independent contractor is undoubtedly better for employers, as employees get certain benefits that are paid for by their employer. However, simply stating that a worker is an independent contractor does not make it so. The burden of proof is on employers to show that a particular worker is not an employee. The independent contractor assessment has evolved over the years; check with your attorney to find out the latest requirements.
In addition to paying back taxes, federal penalties for misclassifying workers include $50 for each W-2 form the employer failed to file, 1.5 percent of the employee’s wages, and an additional 40 percent of back FICA taxes. There are countless examples of employers who were forced to pay millions of dollars due to worker misclassification. In 2016, a Missouri daycare owner was forced to pay nearly $900,000 in back taxes and penalties for wrongfully classifying employees as independent contractors. The owner was also sentenced to two years in prison. Intentionally misclassifying workers is also a felony in Florida.
3. Not keeping up with important payroll records.
A variety of federal and state laws require employers to hold onto payroll documentation for a certain period of time. The Fair Labor Standards Act, for example, requires employers to keep payroll records for three years and work schedules for at least two years—regardless of when an employee leaves the company.
4. Incorrectly calculating employees’ gross wages.
There are many pre-tax deductions and withholding accounts that may impact the taxable income for employees. Common deductions include employee contributions to Flexible Spending Accounts (FSAs), child care expenses, life insurance, and many 401(k) accounts. Not taking all applicable deductions into account before paying taxes can result in your paying more than is required. In that case, you will have to fill out the applicable Form 94 and the corresponding 94X form. You will also need to amend any W-2s to get a refund on any overpayments.
5. Not paying attention to tax deadlines.
Depending on the nature of your business and its overall tax liability, you could have semi-monthly, monthly, quarterly, and annual tax deadlines to keep track of. Some deadlines apply to remitting taxes, while others simply require filings. Monetary penalties are at stake for companies that miss important tax deadlines.
An Attorney Can Help You Avoid Expensive Mistakes
Even seemingly minor payroll tax errors can result in huge monetary losses for your company. In addition to federal and state penalties, you might be forced to pay attorney’s fees for the other side. Trembly Law Firm specializes in helping Florida entrepreneurs get to where they want to go efficiently and properly. Call our team today to discuss your business needs today.