Hiring Employees and Costs for Employers

Congratulations! Your business has grown to the point where you need minions! Paid minions. So where do you start? What can you expect to pay? Several elements exist to a paycheck for the employee and even more elements exist for an employer. I’ll cover the elements of employee pay and employer costs, basic costs of having an employee, what you are required to withhold (and remit!) from an employee’s pay, and what reports you will need to file.

Before you can hire an employee, you must:

  1. Register your business name with the state
    • Go to the Oregon Secretary of State, Business Division website and click “Register a Business”.
  2. Have an EIN (Employer Identification Number) from the IRS
    • To apply for an EIN, go to https://sa.www4.irs.gov/modiein/individual/index.jsp and complete the online application.
  3. Have a BIN (Business Identification Number) from Oregon.
    • To apply for a BIN, go to http://sos.oregon.gov/business/Pages/register.aspx and click “Register a Business Online”. Create an account or login and follow the steps to apply for a BIN.

Elements of a paycheck

Anyone who’s received a paycheck knows that “taxes” are taken out. But, what are “taxes”? And what taxes does an employer have to pay? The below table explains what an employee and employer is responsible for paying:

Tax Employee Employer
Federal withholding Withheld from pay n/a
State withholding Withheld from pay n/a
Social Security 6.2% of gross wages 6.2% of gross wages
Medicare 1.45% of gross wages 1.45% of gross wages
FUTA n/a .06% of gross wages, max wages of $7,000
SUTA n/a Variable rate, max wages of $36,900
WBF Withheld from pay: .016 x # of hrs worked .017 x # of hrs worked

 

Basic costs of having an employee

As a general rule of thumb, take the hourly rate you intend to pay an employee and add 10%. 10% will help account for the employer’s portion of Social Security tax, Medicare, Federal Unemployment Tax Assessment (hereafter referred to as FUTA) and Oregon State Unemployment Tax Assessment (hereafter referred to as SUTA).

Example: You hire an employee at $10/hr. What is your total cost per hour for that employee?

Social Security: .062 X $10.00         = $0.62

Medicare:  .0145 X $10.00              = $0.15

FUTA: .006 X $10.00                     = $0.01

SUTA: .026 X $10.00                     = $0.26 (rate varies by company)

Hourly Wage                                 = $10.00

Total cost                                     = $11.04

Hourly wage + 10% = $11.00

 

Another cost that must be taken into consideration is Workers Compensation Insurance. Rates vary so widely it is impossible to create a blanket formula or example to apply to different companies.

 

What you are required to do with your employees’ paychecks and taxes

You’ve paid your employee and withheld the taxes just like you were supposed to. Now what do you do? You must make a tax deposit consisting of the taxes you withheld (federal and state withholding, SS, Medicare) and some of the taxes you incurred (SS, Medicare). Taxes must be remitted to the IRS and the State of Oregon in a timely manner. Depending on your tax liability, you will use one of two schedules to deposit taxes – monthly and semi-weekly. At the beginning of a calendar year, determine which type of deposit schedule you will use. If you have more than $50,000 worth of tax liabilities during the “lookback period”, you will be a semi-weekly depositor. If you have $50,000 or less, you will be a monthly depositor. A monthly schedule means that you deposit all taxes withheld and incurred by the 15th of the following month. Bi-weekly means within a few days of your paydate, taxes must be remitted for that paydate: If your paydate is Wed-Friday, your taxes are due the following Wednesday. If your paydate is Saturday-Tuesday, then your taxes are due that Friday. See https://www.irs.gov/businesses/small-businesses-self-employed/depositing-and-reporting-employment-taxes for more information.

 

See the following link for definition of “lookback period” https://www.irs.gov/pub/irs-pdf/i941.pdf

 

https://www.irs.gov/businesses/small-businesses-self-employed/depositing-and-reporting-employment-taxes This link contains important information regarding tax deposit due dates.

 

Federal Unemployment must be remitted once the liability reaches $500. State unemployment and employer’s portion of WBF are remitted quarterly, but can be remitted more often to avoid a large quarterly bill.

 

Reporting

Each employer must file two reports quarterly (one federal and one for the state), two reports annually (one federal and one for the state), and complete forms W2 for each employee and a W3 with W2 copies for the Social Security Administration and Oregon Dept of Revenue.

 

Quarterly Reports – Form 941 (federal) must be filed by the last day of the month following the end of the quarter. For example, first quarter report must be filed by April 30th. The Oregon reports (OQ and 132) follow the same filing deadline.

 

Annual Reports – Form 940 (federal) must be filed by January 31st. Form WR (Oregon) must also be filed by January 31st.

 

Wrap-up

We have covered payroll taxes you must withhold from employee pay, payroll taxes you will incur as an employer, when to remit taxes, and what reports to file. I hope this information is clear as mud for you and that you have benefitted from the time you spent reading it.

 

If you have any questions or need clarity on the information above, please feel free to contact me!

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