If you own a business, chances are, you’re dealing with payroll. A lot of companies outsource this service to other businesses or accountants to handle for them. Whether you run payroll yourself or hire someone to do the foot work for you, there are a variety of basic principles you must know to ensure you are following the rules and are able to educate your employees if they have any questions. In this post, we’re going to discuss the basics for Georgia and South Carolina businesses. Whether you’ve had employees for some time now or are looking to grow, this overview of payroll should give you a better understanding of what you are responsible for and how to tackle this seemingly complicated topic.
What you are responsible for
Federal and state withholdings
Most employees choose to withhold federal and state taxes to avoid paying as much tax on their individual return when it is filed. As an employer, you are responsible for having your employees fill out a form W-4. This is an employee’s withholding certificate for the IRS. How they fill out this form will determine how much federal withholding is taken out of the employee’s paycheck.
If your employee works in Georgia, they need to fill out form G-4 which is the equivalent to the federal W-4, except this determines how much state withholding is deducted from the employee’s paycheck.
If your employee works in South Carolina, they need to fill out a SC W-4 which is the equivalent to the federal W-4, except this determines how much state withholding is deducted from the employee’s paycheck.
If your employee works in two states, it is possible that they will need to withhold in both states.
Social Security and Medicare
Social Security and Medicare withholdings are required. Together these withholdings are commonly referred to as FICA. In 2020 the Social Security rate is 6.20% and the Medicare rate is 1.45%. With that being said the total FICA withholding is 7.65% in 2020.
As an employer you are required to match each employee’s Social Security and Medicare. This is an expense to you. For example, if you had an employee who made $1,000 in gross wages, you would need to withhold $76.50 from their paycheck and pay an additional $76.50 for the employer match. This is paid depending on your 941 frequency, which may either take place semi-weekly, monthly, or quarterly. To learn more about what filing frequency you will need to use click here: https://www.irs.gov/taxtopics/tc757
Federal and State Unemployment
Unemployment is required for every employer. This is not an employee withholding and should not be deducted from an employee’s paycheck. Upon starting your business and running payroll you will be given a tax percentage. This rate can and will likely fluctuate over time. If you have a high turn over, your rate will go up. On the other hand, reduced turnover will make the rate go down.
State unemployment is paid quarterly while federal unemployment is paid annually. However, if you owe more than $500 in any quarter in federal unemployment tax, you will need to go ahead and make a payment during the quarter.
The state unemployment tax rate only applies to the first $9,500 of wages for Georgia and $14,000 in South Carolina.
Also note that you cannot pay unemployment for one employee in two different states. If you have an employee who works in multiple states, there are steps to determine which state in which to file unemployment.
If you’re calculating payroll on your own, fortunately there are great resources out there that will help you record your withholdings accurately. If you’re a smaller company on a budget, feel free to keep up with payroll by using Excel and this payroll calculator for hourly employees: https://www.paycheckcity.com/calculator/hourly and this calculator for salaried employees: https://www.paycheckcity.com/calculator/salary
Alternatively, if you’re a larger company, QuickBooks is a great option that allows you to run payroll within the software and it keeps track of your payroll liabilities. With a payroll subscription you can also file your quarterly forms. However, we recommend that you have your CPA oversee your work to avoid any errors or late payments.
Payroll is a part of running any business and the task doesn’t have to be overwhelming. If you’re starting to run payroll, schedule a meeting with your CPA to inform them of your decision so they can begin planning for when they prepare your return. Also, keep them in the loop in case any questions arise in the future. CPA’s are great resources and can provide guidance on this topic.