A Business Owner’s Guide to Payroll Expenses

Are you a small business owner with a few employees? Do you sometimes worry about your payroll expenses and wonder if you can keep on top of them?

More than 68 percent of small business owners in the US started their business in their homes. As they grew, they hired employees and managed their payroll expenses.

Managing and understanding payroll expenses is an essential part of owning a business. Here’s some helpful information about payroll expenses to assist you.

What Are Payroll Expenses?

A business expense is any cost a company has as part of its operations.

Payroll expenses are wages or salaries paid to employees.

It also includes payments for benefits. If you pay for your employee health insurance or provide other benefits such as a vehicle allowance, they are also considered payroll expenses.

When you add payroll and expenses together, you have the total amount it costs to hire employees for your operations.

What Is Not a Payroll Expense?

When you calculate your employee’s pay, you must deduct income tax and other payments due to the government.

These are not the payroll expenses of the business. They are amounts you are taking from your employee and paying to the government on their behalf.

Withholding Benefits

When you have a benefits package for your employee, your business might agree to pay a portion of the benefits. The employee pays the other part.  

The business portion of payroll expenses include:

  • Health and worker’s insurance
  • Commuter benefits
  • Life insurance
  • 401ks or other retirement plans

Every business will have a unique benefits arrangement with their employees.

Support for Payroll Expenses

From time to time, circumstances make it difficult for a business to meet its payroll obligations. The paycheck protection program provides small business loans insured by the federal government.

The US Chamber of Commerce has set out specific requirements to figure out if you are eligible for these loans. If you meet the requirements and maintain your payroll during the program, the government may forgive the loan.

Small business administration (SBA) programs may cover some of your payroll expenses with a business loan. Check here for SBA form support.

What About Payments to Contractors?

Contractors are not employees, so the employee benefits package doesn’t apply. They are an independent business, responsible for their own insurance and benefits.

Contractors are responsible for their tax withholdings and payments to the government. Your business will sign a contract with them.

When you are deciding whether a person is a contractor or employee, one of the things to consider is control. If you have complete control over what and how they do their job, they are more likely to be employees.

Contractors are more autonomous. You give them the work, but they can decide how to perform it. They provide their tools and pay their own expenses.

Calculate Payroll Expenses With Confidence

Payroll can seem complicated because there are a lot of details to take into account. Once you break them down into simple steps, it’s easy to calculate your payroll expenses.

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