Payroll Forms

1. How to decide if you have payroll processing responsibilities

As a small business owner, one of the first questions you may have is, “Do I need to process payroll?” The easy answer? If you have employees, or use independent contractors, then you need to run payroll. It’s no shock that the IRS expects you to play by their rules – when it comes to taxes, employee paperwork and reporting regulations.

Your payroll responsibilities include withholding, reporting and paying federal, state and local taxes on time and using the proper forms. If you make an error in any of these areas, your small business could face hefty government fines.

Let’s say you’re a small business owner who hires your friend Susan to design your company’s Web site. You agree that she’ll work from 9 – 5 in your office, 5 days a week. You pay Susan bi-weekly, and she completes the Web site in 6 weeks. Is she your employee or an independent contractor? Pay attention – there will be a quiz later.

The IRS has (surprise!) a complicated set of rules for how to determine whether someone is an employee or an independent contractor, which I strongly recommend you review. But for now, the easy answer is that for contractors, you manage only the results of the work, and not how, when or where the work is performed.