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  • The end of the year is an extremely busy time for most business owners and your attention is pulled from managing one task to the next. One of the most important responsibilities business owners face – and one of the most stressful to manage – is payroll tax management.

    Let’s take a minute to review two major tax obligations that are of critical importance as the calendar year comes to a close.

    Prior to the last payroll of the calendar year

    Verify employee data: Accuracy is critical when preparing your payroll taxes. Confirm all active and terminated employee data is correct, especially his or her social security number. Check to ensure all wage figures, benefits, sick time and vacation time has been accurately reported. 

    Check the wage, tax and benefits information: Ensure special tax information has been collected and correct withholdings have been made for taxable fringe benefits like third-party sick pay, tips, bonuses and any non-cash payments.

    Check for special considerations: Schedule any payments for bonuses, track and confirm that all checks are accounted for in the system. Have your employees complete a new Form W-4 if their situation has changed. Now is also a good time to restock your payroll supplies like blank checks, payroll forms and blank W-2. 

    Prior to the first payroll of the next calendar year

    Verify employee data: Correct any discrepancies including a missing or incorrect mailing address or social security number. Ensure any employees who are no longer with the company have been removed from the database. 

    Check the wage, tax and benefits information: Verify the new state tax rates for disability insurance, unemployment insurance and the taxable wage limit. Compare your payroll register totals to form W-3 totals and verify if the Earned Income Credit (EIC) coding has been submitted correctly.

    Check for special considerations: Ensure the new year’s month-end close-out dates are accurate and that all necessary management reports are scheduled. Confirm the schedule of pay dates, period end dates and quarterly closing dates. While you check these schedule of dates, make sure they do not fall on any holidays or during weekends and make any adjustments as needed.

    Tax management can be time consuming and complicated. But utilizing automated payroll management services can eliminate some of your burden and can help reduce the time you spend generating the reports you need for tax filing. 

    If you find yourself facing end-of-year payroll challenges, understand that you don’t have to face it alone. Turning to a PEO like GMS – which offers online, 24/7 automated payroll management support, can reduce your payroll burden and save you time and money you would have otherwise spent trying to remain compliant with various (potentially confusing) tax laws.

  • Payroll is an important part of every business. While some small business owners take the time and effort to handle payroll administration in-house, certain factors can signify that outsourcing payroll with a PEO might be in your best interest. Here are some signs that it may be time to consider a switch.

     Image of a business owner considering online payroll services.

    1. When You Just Don’t Have Enough Time

    Business owners have plenty of work to do, and managing payroll is just another task that fills up your schedule. According to business counseling nonprofit SCORE, over half of small business owners spend at least 3-to-5 hours each month to manage payroll in-house. 

    Those are valuable hours that could be spent focusing on ways to grow your business. Depending on how much you work each week – The Alternative Board cites that half of small business owners work more than 50 hours per week – outsourcing these services can save you that precious time that owners constantly need.

    2. When You’re Worried About Payroll Tax Compliance

    Compliance issues can come about in a couple of different ways.  As discussed, processing payroll is a time intensive and tedious process, which can cause certain compliance requirements to slip through the cracks.

    Additionally, you may lack the expertise in knowing exactly what you need to do to keep your payroll compliant with any related regulations. Either way, mistakes can happen when you haven’t been trained to handle payroll.

    Just how big of a concern are payroll tax penalties? In 2013, the IRS doled out 6.8 million penalties, costing business owners a combined $4.5 billion in fees. These penalties range from simply not filing your payroll taxes on time to more complicated issues like not weighing multi-state payroll compliance needs for minimum wage and other regulations. If you’re not careful, you might be subject to some fines, on top of the time and money spent managing your payroll.

    3. When You’re Tired of Dealing with Paper

    After years of managing payroll, a business can go through a lot of paper. While some owners are attached to handing out physical checks, paper documents build up over time and take up plenty of storage space. That also means that you have to dig through all those files when you or your employees need to reference old documentation. With online payroll, those hassles are eliminated, as everything is securely stored online and can be accessed 24/7 with an internet connection. 

    There’s also the monetary benefit of cutting out paper payroll. Offices tend to save “roughly $80 per employee (annually) in costs related to paper, ink, toner, storage space, and postage” by switching to paperless payroll. Also, many PEOs won’t charge you extra for direct deposit services, so you’ll save a decent chunk of money for switching to a service that makes the payroll process simpler for both you and your employees.

    4. When Your Business Starts to Grow

    Business growth is great, but it comes with some extra responsibilities. As your business grows, so does your payroll. That means that payroll management will take longer, involve more chances for error, and make for even more paper printouts. Of course, it also means that other parts of your business may require more attention as well. It’s a good problem to have, but one that requires your full attention for your business to continue to grow.

    Whether your business is growing or you’re noticing another sign that it’s time to outsource your payroll, Group Management Services can help. As a Professional Employer Organization, we specialize in providing comprehensive HR solutions for businesses, including online payroll services. Contact GMS today to talk to one of our experts about how we can help your business through payroll management.

  • Let’s be honest; what business owner looks forward to managing payroll? While payday may be exciting for your employees, it’s likely that you’re not thrilled about having to put together payroll reports, track deductions, and oversee every other critical aspect of payroll administration, especially if you do everything by paper. 

    For some small business owners, payroll administration is just a necessary part of business life and the business isn’t big enough to justify its own HR department. While payroll administration is necessary, it doesn’t have to be a big burden. Online payroll software can give you the tools to take some of the pain out of payday preparation. Here are a few questions you should consider when evaluating your payroll management process.

    Small business owner using online payroll software. 

    Do You Spend Too Much Time on Payroll Administration?

    Payroll management takes time. A survey conducted by the National Small Business Association found that more than half of owners who handled payroll internally spent at least three to five hours per month on the administration of payroll taxes alone. That time doesn’t even include other key payroll functions like processing paychecks, keeping records, and answering questions from employees. 

    Five hours per month may not sound like a lot, but it adds up to 60 hours of payroll administration per year. That’s more than a full work week of time solely dedicated on payroll, and that’s if you only spend five hours per month. Depending on your situation, you could easily spend more time to try and keep your business compliant with payroll tax requirements. If you cut down the time you had to spend on payroll administration, it would free you up to focus on other key projects that can help you grow your business (or even take a well-deserved break every now and then).

    Are You Afraid of Payroll Taxes?

    It’s important to spend time to make sure your payroll is managed correctly, as noncompliance can be costly. According to the Federal Register, the Department of Labor increased the penalties for payroll tax violations effective Jan. 13, 2017, making penalties even more expensive now than they were in the past. 

    When you aren’t a trained payroll professional, mistakes can happen even if you spend more time on payroll tax management. A miscalculation or missing piece of information is all it takes to incur a penalty. Payroll software allows you to easily keep track of deductions online without having to shuffle through old sheets of paper to determine if you did everything right.

    Is Your Business Growing?

    Even if you have a handle on your business’ payroll now, that may not be the case in the future. The more employees you add, the more work will be necessary to complete payroll. If you handle payroll offline, that means more storage space for documents, more potential for mistakes, and more strain on your schedule. 

    Just because your business grows doesn’t mean that your already-hefty workload needs to get bigger. Online payroll allows you to manage everything from any location as long as you have an internet connection. Thanks to the ability to complete payroll in a fraction of the time, you can add more employees without worrying nearly as much about how much longer it’ll take you to handle payroll administration each month.

    Online Payroll for Small Businesses

    Small business owners wear many hats, but you don’t have to be on your own when it comes to payroll management. Outsourcing payroll administration to a Professional Employer Organization allows you to lessen your workload while gaining the benefits of online payroll services. Not only does this mean you can make the move to online payroll, but you also have access to a dedicated payroll specialist who can provide you with help when you need it.

    Considering investing in online payroll software? Contact GMS today to talk to one of our experts about how payroll software can help you and your business.

  • Whether you have a single paid employee or run a small business with many employees, you need to pay attention to payroll. However, payroll involves more than cutting a few checks. Good payroll management is comprised of several different functions that help you properly pay your employees and keep your business compliant with government regulations.

    Payroll documents for a business handling payroll management. 

    Processing Paychecks

    While payroll management involves more than just paying people, proper paycheck processing is still a critical function. Employees don’t appreciate paycheck errors, so a payroll manager needs to verify several details that go into an employee’s compensation. This includes verifying salary and hourly rates while also accounting for regular and overtime hours. Additional compensation in the form of vacation time, holiday pay, and other factors may also apply.

    Another part of processing paychecks is applying any necessary deductions. Some of these deductions, such as federal income tax, are mandatory. Other are optional depending on the employee. For example, an employee who has opted into a company’s group health insurance and 401(k) plans will have insurance premiums and retirement contributions deducted from his or her paycheck.

    Handling Payroll Taxes

    Your employees aren’t going to be the only people upset if you don’t correctly process payroll. Roughly 70 percent of the IRS’ annual revenue is made up of payroll taxes. This means failing to pay payroll taxes can be a costly mistake, as businesses are hit with billions of dollars in payroll tax penalties each year. 

    Payroll managers need to weigh several factors to determine tax deductions, as different regions will have different tax rates. Then they must complete several forms documenting payroll taxes, which includes filing W-2s for each employee by Jan. 31 and completing a 941 form that reports the employment taxes an employer withholds and contributes each quarter. Not only do these files need to be filed accurately, they need to be filed on time, which can be difficult for someone without any training in payroll tax management.

    Keeping Records

    In addition to payroll tax compliance, payroll management also includes a great deal of recordkeeping. The Fair Labor Standards Act (FLSA) requires employers to keep accurate records for every non-exempt worker. These records include:

    1. Employee’s full name and social security number
    2. Address, including zip code
    3. Birth date, if younger than 19
    4. Sex and occupation
    5. Time and day of week when employee’s workweek begins
    6. Hours worked each day
    7. Total hours worked each workweek
    8. Basis on which employee’s wages are paid (e.g., “$9 per hour,” “$440 a week,” “piecework”)
    9. Regular hourly pay rate
    10. Total daily or weekly straight-time earnings
    11. Total overtime earnings for the workweek
    12. All additions to or deductions from the employee’s wages
    13. Total wages paid each pay period
    14. Date of payment and the pay period covered by the payment

    The FLSA also states that payroll data should be kept on file for three years. Records that involve wage computations should be kept for two years, such as work schedules, time cards, and other related documents. A payroll manager can ensure that these documents are stored electronically in case the Department of Labor [DOL] ever decides to check in on a business.

    Employee Accessibility

    It’s important to have financial documents readily available for the DOL, but employees should also be able to access key payroll information. An online employee portal like GMS Connect gives workers a secure online place where they can access personal information, such as:

    • Benefits summaries
    • 401(k) summaries
    • Check history and deduction totals
    • Direct deposit details
    • Time clocks
    • Paid time off 

    In addition, GMS Connect allows employees to download and print out important documents such as W-2s, change tax settings, and make payroll inquiries, which gives your employees the power to answer their own questions come tax season.

    Simplify Payroll Management with the Help of a PEO

    Payroll isn’t easy. As a small business owner, you may not have an HR department to deal with the responsibilities and liabilities of payroll management. However, that doesn’t mean you need to manage payroll on your own.

    Outsourcing payroll administration to a Professional Employer Organization can help you ease the burden of managing payroll for your business. GMS can help you handle all the important financial details, allowing your business to effectively manage payroll and stay compliant. Contact GMS today to talk to one of our experts about how outsourcing payroll administration can benefit your business.

  • Payroll taxes are complicated, especially when you don’t have any payroll training. Small business owners have several tax responsibilities that they must manage throughout the year, which can take up hours of your time each month. Of course, if you incorrectly calculate the tax withholdings for someone’s paycheck, both the employee and the federal or state government may have a bone to pick with you.

    One of the most time-consuming and difficult parts of payroll tax management is that there is more than one type of tax that you need to handle. You are responsible for withholding multiple types of taxes from your employees’ wages, including income tax and payroll tax. These taxes each have specific rules in terms of how you and your employees contribute to them and what groups regulate them. Here’s a rundown of the difference between income tax and payroll tax.

    Income tax and payroll tax documents for a small business. 

    What is Income Tax?

    Income tax is part of what the IRS deems as employment taxes, which also includes items like unemployment taxes. In all, income tax is comprised of federal, state, and local income taxes, depending on where your business and employees are located. These taxes are used to fund public services such as parks, education, and other programs.

    Federal income tax is mandatory for employees in all states. The amount of federal income tax you withhold from each employee’s paycheck will depend on the allowances they selected on Form W-4, which is required for each employee after they’re hired. The more allowances an employee claims, the less you’ll generally have to withhold from his or her paycheck. The IRS’ Publication 15 provides calculation methods and table so that you can determine what needs to be withheld from each employee’s paycheck.

    State and local income tax are regulated by individual state and local governments. However, only 41 states require employers to withhold state income tax from employees’ wages. Two states—New Hampshire and Tennessee—have income taxes that don’t apply to employment income. The seven other states simply don’t have any income taxes to worry about at all: 

    • Alaska
    • Florida
    • Nevada
    • South Dakota
    • Texas
    • Washington
    • Wyoming

    Local income taxes are not nearly as common as state income taxes. There are only 16 states that require you to withhold local income taxes in addition to state and federal income taxes: 

    • Alabama
    • Arkansas
    • Colorado
    • Delaware
    • Indiana
    • Iowa
    • Kentucky
    • Maryland
    • Michigan
    • Missouri
    • New Jersey
    • New York
    • Ohio
    • Oregon
    • Pennsylvania
    • West Virginia

    While you can use Publication 15 for instructions on how to calculate federal income tax, state and local income taxes are dependent on the location of your business and your employees. Each state has its own rates for state and local income tax (if applicable), some of which will be a flat percentage while others have their own personal allowance system that require additional calculations. You’ll need your state government’s site to find specific details in terms of withholding rates and depositing schedules. 

    It’s also important to note that while your business may be in one state, out-of-state employees may be subject to different payroll regulations depending on their location. This can affect the amount of income tax you withhold from these employees’ wages and open you up to non-compliance penalties, so make sure you stay up to date with the regulations for different states and local governments if they apply to your employees or multiple business locations.

    What is Payroll Tax?

    While multiple taxes affect payroll, the IRS does have a more specific definition for “payroll taxes.” These taxes are also known as FICA taxes and are a combination of Social Security and Medicare taxes, both of which fall under the Federal Insurance Contributions Acts (FICA). As expected, these taxes are used to fund Social Security and Medicare programs.

    Unlike federal income tax and some state and local income taxes, payroll taxes are based on a flat percentage. However, FICA taxes also call for both employees and employers to contribute to them. For Social Security tax, both parties contribute 6.2 percent of an employee’s wages up to a wage base of $128,400 for 2018. Medicare tax is similar in that both the employer and employee contribute 1.45 percent of the employees wages up to the following wage base limits:

    • $200,000 for employees who are single
    • $250,000 for employees who are married and file jointly
    • $125,000 for employees who are married and file separately

    However, Medicare also requires you to withhold an additional 0.9 percent of wages once an employee passes those wage base thresholds. As an employer, you are not required to match this additional 0.9 percent contribution.

    Stay on Top of the Payroll Process

    The multiple types of taxes involved in the payroll process are just one reason why one third of small businesses spend at least 40 hours per year managing payroll taxes. Add in the potential for mistakes that can lead to fines from the IRS and it makes sense why many small business owners turn to outside companies to help them manage their payroll.

    As a Professional Employer Organization, GMS has a team of experts that can help decrease your payroll responsibilities and liabilities while saving you valuable time. Contact GMS today to talk to one of our experts about how outsourcing payroll administration and other HR functions can benefit your business.

  • Who doesn’t love payday? For many employees, payday makes them feel better than Christmas. As a small business owner, you have the freedom to decide how to handle payroll at your organization. Talk about a huge responsibility. It’s important to get it right, as payroll done wrong can cost a small business owner time and money. 

    There are a few different methods for distributing employee pay, but savvy business owners find that electronic payroll methods like direct deposit and payroll cards streamline the process and keep employees satisfied. We explored the different types of payment methods to help you determine the best payroll solution for your business.

     Small business owner determining employee pay.

    Direct Deposit

    Direct deposit lets you put your employees’ wages directly into their checking or savings account. Because everything is handled digitally, employees don’t need to be present to receive their pay. The convenience of direct deposit for both employers and employees has made it the most common payment method in the U.S., with 82 percent of employees receiving their pay this way, according to a survey by the National Automated Clearing House Association (NACHA). 

    Direct deposit can help save time since you don’t have to fill out and distribute checks each pay period. Online payroll software can further help streamline this process and save money. With software, payroll simply needs to be reviewed before submitting it to be deposited in your employees’ bank accounts. Without software, small business owners are responsible for paying fees for setup and for every transaction.

    For direct deposit, you’ll need to gather your employees’ banking information at the time of hire. Of course, it only works if employees have bank accounts. According to the Federal Deposit Insurance Corporation (FDIC), nearly 20 percent of American households are “underbanked,” meaning they either don’t have or actively use a bank account. If you choose direct deposit as your primary payment method, you’ll need to provide an alternative option for those who don’t bank.

    Payroll Card

    Payroll cards are another form of electronic payment that lets you automatically load an employee’s wages directly onto a prepaid card at each pay period. Employees can then either use the card directly to make purchases or withdraw cash at ATMs.

    With payroll cards, employees don’t need to have a banking account, making it a viable alternative to direct deposit. It also helps save businesses time and money compared to writing or printing paychecks. The benefits for both employers and employees are why payroll cards have become a growing trend, with the use of payroll cards expected to increase by about 43 percent by 2022, according to a study by Aite Group.

    Other Types of Payment Methods

    Paychecks and cash are two outdated forms of payment methods that simply aren’t worth the hassle or added costs. For employers, writing or printing paychecks can be an extremely time-consuming task, especially depending on the frequency of your payroll. 

    Additionally, you’ll have to factor in the cost of purchasing blank checks, and/or printing supplies like check stock, ink, and a printer that has the capability to print with magnetic ink to read, process, and print bank account and routing numbers on the checks.  Switching to paperless can cut these costs. A report in Business News Daily states that “businesses save between $2.87 and $3.15 per pay run by paying employees electronically, such as via direct deposit, instead of via paper check.” The report also points out that online pay stubs save an additional $1.20.

    The amount of recordkeeping that comes with paying in cash can also be a nightmare for small businesses. Cash payments could make the IRS suspicious that you aren’t taking out the correct tax amounts, making you susceptible to an audit. Even if you are in compliance, IRS audits cost significant time and money.

    For both methods, employees need to be present in order to receive pay, which could be a problem if employees are out sick or on vacation. According to CareerBuilder, nearly 80 percent of Americans live paycheck to paycheck, so a delay in pay could really hurt your employees financially.

    Save Time Through Payroll Services

    While we’re thankful electronic payment methods have replaced checks and cash, managing payroll and tax filings can still be a time-consuming and challenging task for small business owners. 

    Need assistance? Outsourcing payroll administration to a professional employer organization (PEO) like Group Management Services (GMS) can help save you time and give you peace of mind. From electronic payroll processing to software to taxes, GMS takes an active approach managing payroll, so you can spend the extra, time, money, and energy growing your business. In addition to payroll services, GMS offers a full suite of HR services that compliment payroll administration, including human resources, risk management, employee benefits, and more.

    Contact GMS today to see how we can help manage payroll at your organization.

  • Whether you’re trying to find a way to save time and energy by outsourcing payroll administration or your old payroll partner just isn’t cutting it, you’re going to have to deal with the process of switching to a new payroll system, also known as payroll conversion. A rough transition to a new payroll system can lead to serious issues, including IRS penalties for non-compliance. Fortunately, there are some ways to help alleviate some potential issues that can arise when you convert your payroll process to a new system.

    A small business owner going going through the payroll conversion process with a PEO. 

    Conversion Timing

    Once you’ve decided that it’s time to switch to a new payroll provider, it’s important to consider when you want to start the process. Planning a conversion at a certain point in the year can help simplify the conversion process. 

    Typically, the end of the calendar year is one of the best times to undergo payroll conversion as it allows you to start the new system off fresh regarding balances. You can also convert payroll at the end of a quarter, but you’ll have to enter historical data like employee earnings, taxes, and deductions based on the time of the year. If you decide to convert in the middle of a quarter, you’ll have to make sure everything matches up on the exact dates, which can leave you open to a greater potential for errors and a longer conversion process. 

    Data Transfer and Verification

    No matter when you decide to undergo payroll conversion, you’re going to need to transfer a lot of data to your new payroll company. A good payroll partner will have a set list of information you need to provide and how it should be delivered. Some companies may ask you to manually enter data yourself, but others will simply ask you to provide your information physically or electronically and they will transfer it to the new system for you. 

    Depending on the company, they may even tailor your setup checklist to your company or the payroll company you worked with previously to simplify the process. In general, the more your new payroll company takes off your hands, the easier the conversion process will be on your end.

    Once the information is in the system, it’s important to ensure that everything is set up properly and that all the data provided is correct. A new payroll company can test the accuracy of both the system and the data by running your old system at the same time as your new system to cross-reference key details so that everything runs as it should once you’re completely switched over to your new payroll process.

    Payroll Tax Management

    There are many different functions of payroll management, and handling payroll taxes is an extremely important one. One third of small businesses spend at least 40 hours per year managing payroll taxes, so you want to make sure that your new payroll partner has a payroll process that doesn’t complicate payroll tax management and reporting. 

    When you’re ready to switch to a new payroll partner, ask about how potential vendors update tax table information and convenient options for sharing information so that you aren’t left in the dark when it’s time to manage payroll through your new payroll system. In fact, you may find that some payroll partners can take on some of the responsibilities and liabilities involved with payroll taxes. This not only can help simplify the payroll conversion process by lowering the number of tasks you need to manage, it can save you time and energy for years to come.

    Customer Support

    Your new payroll partner is there to make your life easier, so don’t be afraid to ask questions and find out just what level of support they offer. These questions include:

    • Do you have any relevant clients that I can call for a reference?
    • Will I have a consistent contact during the payroll conversion process?
    • What hours is customer support available and how are they available?
    • Do you provide a checklist or timeline for what happens during the transition and who is responsible for these tasks?
    • How much do you help with payroll compliance issues?
    • Will you keep me up to date with any new payroll laws or changes to current regulations?
    • How will my employees access their payroll information and documents?

    If a potential payroll partner appears to dodge your questions, that could be a sign that they aren’t the right fit for your business. Instead, they should provide clarity as to how they’ll simplify the conversion process, which should include assigning you a dedicated point person and a detailed setup checklist. This list should clearly lay out the payroll conversion process, including meetings, system training, and other demos to make sure that you know how to work with the new system and avoid any early hiccups during the transition.

    The Advantages of Payroll Management Through GMS

    At GMS, we know that the process of switching to a new payroll partner and online payroll software can be stressful. That’s why any new GMS client is assigned a dedicated coordinator who will help guide you through the payroll conversion process, which includes gathering necessary documentation, entering data into the system, and communicating key details to ensure a smooth transition to GMS.  

    While some companies solely handle payroll, payroll administration is just one of many vital HR services that GMS offers. We provide comprehensive HR solutions for small business owners, including benefits administration, risk management, and other functions. As your business grows, your time becomes an increasingly valuable commodity. We help you reclaim that time to focus on building your business while strengthening your company through expert HR management.

    Ready to make the switch to a new HR partner? Contact GMS today to talk to one of our experts about payroll administration and other key HR functions.

  • Payroll management is no simple task. Regardless of whether your workforce is 50 strong or you can count the number of employees on two hands, there are lots of employees and documents to keep track of and failure to do so could result in serious penalties and fines. To help, we’ve put together a guide for better managing payroll records.

    Payroll records. 

    What Payroll Records to Keep and For How Long

    Payroll records are documents and items related to paying your employees. Similar to how a candidate’s job applications and interview records need to be kept for one year, the U.S. Department of Labor (DOL) Wage and Hour Division and Internal Revenue Service (IRS) require employers to keep payroll documents for a set amount of time. Here are the payroll records you need to keep in your files:

    Hiring documents

    Hiring documentation like an offer letter include DOL-required employee data, such as their residential address, job title, and pay rate.

    Keep for three years.

    I-9 documents

    These include information about an employee’s eligibility to work in the U.S. and DOL-required information like the employee’s full name and Social Security number.

    Keep for three years.

    Time cards

    Time cards show total hours worked, including unpaid lunch breaks and overtime pay.

    Keep for three years.

    Paystubs

    These will show payment dates and the total wages each period. Paystubs will also include any additions (like reimbursement) or deductions (like taxes and benefits) to wages.

    Keep for four years.

    Employee handbook

    Every employee should have signed your employee handbook. Employee handbooks provide information on how your employees are paid (hourly or salary) and how often you pay employees (weekly, biweekly, monthly). It also describes information regarding paid holidays, termination, and severance.

    Keep for three years.

    Compensation philosophy

    A compensation philosophy shows how you determine employee pay grades. You’ll also need to show rationale for pay increases or merit increases, as required by the Equal Employment Opportunity Commission (EEOC).

    Keep for two years.

    Tax forms

    The IRS requires employee and employer tax documents, including W-4s (employees’ withholding allowance certificates) and W-2s or W-3s (employee’s wage and tax statements). 

    You’ll also need to keep payroll tax payments, which can be found on Forms 941 (employer’s quarterly tax form, which also includes information on tipped wages) and 940 (employer’s annual federal unemployment tax return).

    Keep for four years.

    Retirement income

    Retirement income statements show 401k or profit-sharing plan details as required by the Employee Retirement Income Security Act (ERISA). You’ll also need to keep documents outlining enrollment, payment, and payroll deduction.

    Keep for six years.

    Leave documentation

    The Family Medical Leave Act (FMLA) requires payroll records regarding your leave policy, requests for leave, leave balances, and leave payments. This information is typically found in your employee handbook or on employee paystubs.

    Keep for three years.

    Termination information

    A termination letter outlines an employee’s end date and any final payments, such as unused paid time off or severance.

    Keep for three years.

    Keep in mind that anytime you have a dispute relating to payment or employment with an employee, it’s best practice to keep all payroll records until the dispute has been resolved.

    State-Specific Payroll Records Retention

    Most states abide by the payroll records retention guidelines provided by the U.S. Department of Labor and IRS, as detailed above. However, a few states have further legislation that affects what payroll records to keep and for how long. These include the following exceptions:

    • New York requires payroll records to be kept for six years.
    • California requires that all payroll records be retained for six years.
    • Illinois requires employers to keep all payroll records for five years.
    • Washington has more specific requirements of what payroll records to retain.

    Destroying Payroll Records

    Keep in mind that holding onto payroll records for longer than required can put business owners at risk. Financial and personal information related to payroll, such as bank account information, credit reports, and photocopies of social security cards, should be destroyed after the retention time frame to prevent confidential data from being misused. In case any questions about destroyed documents arise, you’ll also want to keep track of which payroll records you’ve destroyed and when.

    How to Store Payroll Records

    As you can see, there are lots of payroll records to manage. Business owners will need a good filing system to keep track of these documents. 

    Think twice before storing paper records in filing cabinets or boxes. Often, these records are forgotten about and kept for longer than needed. It’s also time-consuming to manually file each document and can be even more tiresome should you need to refer back to certain records. Security can also be an issue, as these filing systems are often easily accessible.

    Rather, savvy business owners have found that it’s much more efficient to digitally store these important documents in a payroll management system. This ensures that records are securely stored and can be readily available from anywhere there’s an internet connection. Additional online payroll software benefits include:

    • Payroll processing. Ensure employees are paid on time every pay period and electronically store information regarding paystubs, payroll deductions and time tracking.
    • Payroll tax. Streamline filing and ongoing maintenance of tax records.
    • Employee self-service. Give employees 24/7 access to their payroll and tax information.

    Outsource Payroll Records Management

    When it comes to payroll records, there’s a lot of information to process—mentally and literally. Outsourcing payroll records management through a professional employer organization (PEO) like Group Management Services can help business owners save time and worry. We take on the burden of payroll records management, so you can put your focus back on client relationships, building and effective team, and growing your profits. In addition, GMS provides human resources, risk management, employee benefits services to help make your business simpler, safer, and stronger.

    Stop wasting time on payroll records management. Contact us today to talk to one of our experts about our payroll services.

  • As an employer, understanding how to calculate payroll tax and income tax deductions is essential to running a compliant and efficient business.. A major part of that is making sure every employee’s paycheck has the correct taxes and other deductions withheld. Below is an overview of some of the most important payroll deductions for 2025, along with pointers on how to calculate them.

    Calculating Payroll Taxes for Employees

    The term payroll tax typically refer to Federal Insurance Contributions Act (FICA) taxes, which include both Social Security and Medicare contributions. For 2025, the employee-share rates remain:  

    • Social Security: 6.2% of gross wages
    • Medicare: 1.45% of gross wages

    This totals 7.65% for most employees, withheld each pay period. For example, if someone’s gross pay is $1,000:

    • Social Security withheld = $1,000 x 6.2% = $62
    • Medicare withheld = $1,000 x 1.45% = $14.50
    • Total Payroll Tax withheld = $76.50

    Meaning every paycheck for that employee will have $76.50 withheld.

    How to Calculate Federal Income Tax Deductions

    Unlike the flat rates for Social Security and Medicare, income tax deductions are determined by the employee’s Form W-4 and IRS tax tables. The IRS has 2025 Form W-4 instructions and updated tables in Publication 15-T. You can generally calculate withholding using either the wage bracket method or the percentage method.

    Wage bracket method

    This method uses easy-to-read tables. You simply:

    1. Look up how frequently you pay employees (weekly, biweekly, semimonthly, monthly, etc.).
    2. Choose the correct table based on the employee’s filing status (from the Form W-4) and whether they’ve checked the Step 2 box.
    3. Find the wage range in the table; the table cross-references the amount of tax to withhold based on any additional adjustments entered on the W-4.

    Percentage method

    This approach involves a bit more math, but it may be more flexible if your payroll amounts frequently exceed the ranges in the wage bracket tables. You will:

    1. Convert allowances (if you still have employees on 2019 or earlier W-4s) or interpret the relevant steps if they’re using a 2020 or later W-4. (For 2019/pre-2020 forms, note that the IRS publishes a “computational bridge.”)
    2. Subtract any allowances (or standard W-4 adjustments) from gross wages to get the taxable portion for that pay period.
    3. Apply the percentage method table.
    4. Add or subtract any additional amounts indicated on the employee’s W-4.

    Understanding State and Local Payroll Tax Withholding

    State And Local Taxes

    Federal income taxes aren’t the only concerns; many states and local governments require payroll tax withholding for state and local income tax deductions.. The method differs from state to state:

    • Some states (e.g., Florida, Texas) do not impose state income tax, meaning you only handle federal deductions.
    • Others (e.g., Ohio, New York) require both state and sometimes local income tax withholdings.
    • Check your state government’s website or official documentation for the 2025 rates and instructions.

    Additional (Voluntary) Paycheck Deductions

    In addition to required taxes, some income tax deductions are voluntary and may be either pre-tax (which reduce taxable income) or post-tax: These can include:

    1. Health insurance premiums for medical, dental, vision, etc.
    2. Retirement contributions (e.g., 401(k), IRA) chosen by the employee.
    3. Life insurance premiums paid via payroll deduction.
    4. Job-related expenses if you have agreed to recoup certain business expenses through paychecks (where legal).

    Ensure that these are set up correctly in your payroll system. Some might be pre-tax (reducing taxable wages), while others are post-tax.

    Why Payroll Tax Compliance Matters

    Staying accurate and up to date on payroll laws and tax tables is vital. Miscalculating payroll tax or income tax deductions can result in underpayment or overpayment, leading to potential penalties from the IRS or your state’s tax authority. It also impacts employees directly; over-withholding means smaller paychecks, while under-withholding can mean a big tax bill in April.

    • You’re responsible for timely depositing withheld taxes with the IRS, as well as filing the proper forms (like Forms 941 or 944 for federal payroll taxes).
    • For 2025, be sure you’re referencing the latest versions of IRS Publication 15 (Circular E) and Publication 15-T (2025) for the updated wage bracket or percentage method tables.

    Let GMS Simplify Your Payroll Tax Process

    Handling small business payroll taxes can be daunting, especially as forms and laws evolve each year. Group Management Services (GMS) can take the guesswork out of payroll tax and income tax deductions, ensuring accurate withholdings, filings, and tax deposits. If you’re:

    • Worried about maintaining compliance for 2025.
    • Unsure how to handle different forms (e.g., older 2019 W-4 forms vs. new 2025 W-4 forms).
    • Concerned about multi-state or local tax withholding.

    Group Management Services (GMS) can help streamline all aspects of your payroll tax management, from accurate withholdings to timely tax filings, allowing you to focus on growing your business. Contact GMS to learn more about our payroll tax services and how we can help you navigate the complexities of income tax deductions.

  • Determining pay frequency can be challenging for business owners. While most employees prefer to be paid more often, a higher pay frequency can cost employers. Not to mention, there are federal and state laws that set standards for how employees are paid. That’s why exploring the different pay period options and federal and state payday laws is critical to help you choose the right pay frequency for your business and employees.

     Pay day.

    Pay Periods

    A pay period is a recurring length of time that determines how often employees are paid. Depending on your state, there are several to choose from, and each has its pros and cons (but we’ll get to that later). The typical options for paying employees are:

    • Weekly: This is usually on the same day of the week, like Friday, for the previous week’s work. Employees are paid 52 paychecks a year.
    • Biweekly: Employees are paid every other week, either for the previous two weeks or the two weeks before that. This pay period results in 26 paychecks a year.
    • Semimonthly: Workers are paid twice a month, usually on the first and 15th each month, receiving 24 paychecks a year.
    • Monthly: This is typically either on the last day of the month or the first day of the following month. Employees receive 12 paychecks a year.

     

    Federal Pay Frequency Laws

    Federal law does not set requirements for how often you have to pay employees—that’s left up to the states. However, federal laws do say that employers must keep a reliable and consistent pay frequency. This means that, for example, you can’t pay employees weekly one month and then biweekly the next.

    Under certain circumstances, you may be allowed to change your pay frequency. In order to do, so the following must apply:

    • You have a legitimate business reason.
    • The change is permanent.
    • You are not avoiding overtime or minimum wages.
    • You don’t unreasonably delay payment.

     

    State Pay Frequency Laws

    Almost every state has pay frequency laws indicating how often you should pay employees. Many states require a monthly, semimonthly, biweekly, or weekly payroll as the minimum frequency for paying employees. Keep in mind, you can always pay employees more often than the state requires.

    For example, Ohio requires a semimonthly payroll, but that is not the only pay frequency you can choose in that state. You can also pay employees biweekly or weekly, as long as you at least pay employees semimonthly. Or, in New Jersey, you can pay executive and supervisory employees at least once a month but must pay all other employees semimonthly at minimum. Find your state in the map below to see what the minimum pay frequency is for your business.

     

     

    Choosing a Pay Frequency

    After looking at your state’s pay frequency laws, you’ll have to determine how often to pay employees. While employees typically prefer to be paid more frequently, you’ll also have to consider factors that affect your business.

    Payment methods

    Depending on the way your employees are paid, certain payment methods are more of a hassle than they’re worth. For example, if you’re still using outdated methods like checks or cash to pay employees, then upping your pay frequency means spending more money on printing supplies and more time on bookkeeping. Even with direct deposit, higher pay frequency can mean more transaction fees if you’re not utilizing online payroll software.

    Employee benefits

    You’ll also want to factor in benefits. Employee benefits like health insurance typically run on a monthly basis, so paying employees monthly or semimonthly makes calculating voluntary paycheck deductions easier than if you were to pay on a biweekly or weekly schedule.

    Overtime

    While overtime isn’t a factor for salaried employees, it can be difficult to track for hourly workers if they’re paid on a semimonthly or monthly basis when the pay date falls in the middle of the week. For example, if employees are paid on a Wednesday, it can be difficult to calculate overtime for that week because that week’s pay is split into two different pay periods.

    Business owners typically find it’s best to pay different employees at different times. Many choose to pay salaried employees on a semimonthly or monthly basis, and weekly or biweekly for hourly workers.

     

    Payroll Services

    For small business owners, managing payroll can be one of the most time-consuming and challenging tasks there is. Need assistance? Outsourcing payroll administration to a professional employer organization (PEO) like Group Management Services (GMS) can ensure your employees are paid on time, every time. From electronic payroll processing to software to taxes, GMS takes an active approach managing payroll, so you can spend the extra, time, money, and energy growing your business. In addition to payroll services, GMS offers a full suite of HR services that compliment payroll administration, including human resources, risk management, employee benefits, and more.

    Contact GMS today to see how we can help manage payroll at your organization.