Disclaimer: This article is not provided as legal advice, nor is it a substitute for legal counsel. As laws in jurisdictions vary, it is incumbent on the recipient to insure compliance with State and Federal labor and tax laws. The content of this blog should foster discussion with your financial advisor to determine parameters of state and federal laws affecting your business. Gusto payroll and HR services services are only available in the US.
5 Questions to Ask Before Tackling Payroll On Your Own
Payroll is one of the most complicated aspects of owning and running your own small business. It’s also the area where small business owners tend to make errors that can be costly and difficult to resolve. Before deciding to tackle payroll independently, ask yourself these five questions:
- Does payroll cut into time you’d rather spend with clients, or on marketing, growth, and expansion?
- Have you made an expensive payroll error or been charged a tax penalty for an IRS filing mistake?
- Has your business scaled up or added more employees, making payroll more complicated?
- Has your salon, spa, fitness or wellness center been re-classified as a traditional employer, making payroll responsibilities more complex?
- Do you have a mixture of pay structures that makes managing payday a headache?
If you answered yes to any of these questions, it’s time to consider payroll services with a trusted payroll provider to save time and money. No matter what profession you’re in, if you own your own business, one of the commitments you take on is payroll. For small business owners (particularly in salon, spa, and fitness) payroll is the most confusing, time-consuming, and expensive part of owning your own business.
According to National Small Business Association research, 24%
of small businesses spend upwards of 120
hours every year dealing with employee federal tax issues. And that
statistic doesn’t factor in all the time that’s spent on related issues, like correcting
and paying for payroll or tax mistakes. That’s a huge demand on your time—and
as a small business owner, you know all too well that time is money! Many small
service-based businesses aren’t sure how to make payroll easier with software
and dedicated payroll platforms. Here’s what you need to know about processing
payroll easily and reliably for your salon, spa, fitness, or wellness center.
How Do You Pay Your Employees? Vagaro and Gusto Can Handle That.
One of the greatest challenges in the beauty, fitness, and wellness industries is that employment doesn’t always follow a traditional model. In fact, one business might have several different pay structures operating at once, making it challenging to run payroll and be certain you’ve maintained compliance with all state and federal tax and labor laws. For starters, the line between employee and independent contractor isn’t always clearly defined. The line becomes even more blurred when you add in other pay structures, such as self-employed and booth renter. Further complicating this matter is the fact that the laws are ever-evolving and small businesses often don’t keep up with changes to law. Many salon payrolls are structured for booth rental, a structure whose tax laws have changed. Now, many booth-rent salons, spas, and fitness studios are responsible for withholding employee taxes and matching the mandatory employer taxes. Often, this includes social security, Medicare, FUTA, and state unemployment taxes.
IRS Definitions of Employee vs Independent Contractor
According to IRS publications related to the beauty and personal services industry, the main difference between an employee and an independent contractor is as follows:
employee is defined as “…anyone who performs services for you… 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.”
independent contractor is defined as a worker for whom “…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.”
If this distinction still leaves you wondering whether your staff should be classified for payroll purposes as employees or independent contractors, you can refer to Gusto’s handy “Employee vs Contractor” cheat sheet to make sure that you’re complying with state and federal laws with your payroll practices.
Streamline Your Payroll Tax Responsibilities with Gusto
Many salons, spas, barbershops, fitness and wellness facilities have been re-classified as “employers” in a more traditional sense. Because of this, the duty of payroll taxes is no longer solely the responsibility of the worker. Some of the payroll tax tasks many beauty, fitness and wellness business owners are responsible for now include withholding taxes from regular payroll, making tax payments, quarterly and/or annual tax filings, as well as providing employees with W-2 forms. For many small business owners, this new set of complicated administrative tax tasks is a clear sign that it’s time to consider a payroll provider to help ease the drain on time, money, and resources.
Payroll Taxes Applicable to Employers
Disclaimer: This article is not provided as legal advice, nor is it a substitute for legal counsel. Please refer to the IRS Publication “Tax Tips for the Cosmetology and Barber Industry.” As laws in jurisdictions vary, it is incumbent on the recipient to insure compliance with State and Federal labor and tax laws. The content of this blog should foster discussion with your financial advisor to determine parameters of state and federal laws affecting your business.
In general, there are four types of taxes that traditionally-classified employers are responsible for withholding, tracking, and remitting.
- Social Security – FICA (Federal Insurance Contributions Act)
- Medicare – FICA (Federal Insurance Contributions Act)
- Federal Unemployment Tax (FUTA)
- State Unemployment Tax (SUTA)
In addition to these taxes, traditionally-classified employers may also be obligated to provide resources related to employee retirement funds, benefits, tax reporting and filing, or worker’s compensation. Beauty, fitness and wellness business owners may have a variety of pay structures included on one payroll. Thus, having a dedicated payroll provider to ensure compliance and precision can save time and money, as well as costly errors down the line.
Avoid Payroll and Tax Errors with Gusto Payroll and Vagaro Software
Payroll errors can have expensive repercussions that threaten your business livelihood. For example, in 2017, the IRS collected more than $5 million from businesses for payroll errors. Most small businesses can’t afford to get hit with an IRS tax penalty of that magnitude. Additionally, payroll errors can continue to negatively impact your business, as payroll errors can sometimes trigger a tax audit. The most common payroll tax errors are also the most avoidable:
- Not staying updated on current payroll rules and
- Paying employees incorrectly
- Keeping incorrect or outdated reports on file
Rather than going it alone, spending valuable work hours trying to process payroll independently and hoping you got it right, get Gusto and breathe easy. Automated payroll software takes the guesswork out of payroll and keeps you up-to-date on new regulations that impact your business, preventing accidental errors. Likewise, payroll software ensures accurate employee pay and protects your business from wage complaints. Because paydays are automated and recorded using a centralized service, all your forms and records are organized and available when you need them.
How to Choose the Right Payroll Provider
Choosing the right payroll provider might seem just as confusing as payroll itself. There are many factors to consider when deciding on the right payroll provider versus the cost of processing your own payroll. To help you get started, use the checklist to calculate the services your business requires and create an ideal payroll budget to meet your needs.
The Gusto Payroll Toolkit
When you sign up for Gusto payroll services through your Vagaro account, you’ll have all the tools and automation you need to run payroll and take care of your employees, both established and new hires. As well as all the Vagaro tools you rely on for timekeeping and payroll calculations, here are some of the Gusto payroll tools you’ll have at your fingertips!
- Payroll processing & unlimited payrolls
- Direct deposit
- Digital pay stubs
- Flexible pay schedules
- Multiple pay rates and pay schedules for every
- Ability to split paychecks into multiple bank
accounts and savings programs
- Built-in minimum wage adjustment
- Contractor payments (including 1099 forms)
- All federal, state, and local payroll tax forms
filed for your business
- Year-end tax filings
- e-file, e-sign, and e-fax technologies
- Deductions, reimbursements, and wage
- Easy sync with other software systems (Xero,
- FICA tip credits
- Easy, paperless employee onboarding for new
- Human Resources (HR) accessibility and
resources, including vacation and sick time policies, workers compensation, and
Disclaimer: This article is not provided as legal advice, nor is it a substitute for legal counsel. As laws in jurisdictions vary, it is incumbent on the recipient to insure compliance with State and Federal labor and tax laws. The content of this blog should foster discussion with your local attorney to determine parameters of laws affecting your business and a determination of legal exposure, if any.
Cross payroll off your to-do list and put an end to your small business tax headaches with Gusto! When you integrate your Vagaro account with Gusto and sign up for payroll services through your Vagaro account, you’ll get three months of Gusto payroll processing service for free, so you can take the software for a test-drive and see what it’s like to have payroll taken care of for you!
Header Image: Giorgio Trovato via Vagaro
Infographics: Mia Montemayor via Vagaro