No matter how much you wished it were different, you only have 24 hours in a day. And you are juggling at least ten different roles in those 24 hours.
You’ve got to:
- deliver your product/service
- keep your customers happy
- find new customers
- do the bookkeeping
- feed yourself
- write your content
- answer all the never-ending emails
- clean your house
- and 50 million other things
One day, you hit your limit and bite the bullet and complete all the red tape so you can hire your first employee.
You breathe a slight sigh of relief because now you’ve eliminated a couple of hats. And think,
I might just have time to do the tasks I like to do!
Paying your employee
You noticed that your QuickBooks has the ability to print employee checks. And so you think, I’ll save money and just print checks for my employee this way. It tells me how much to deduct, so I’m set.
So every two weeks you dutifully print off the check to your employee and give it to her.
A year or so goes by and you now have two employees, but you continue to print and give them their checks every two weeks.
A white envelope comes in the mail
One day you get a white envelope in the mail from your state’s tax agency. The letter says:
You can ignore this letter if you have a payroll service. If you don’t contact us.
You are using QuickBooks to calculate payroll, so you ignore the letter. Then you get more letters from them. And you get a letter from the IRS. A couple more months pass, but the letters keep coming. So you finally open one of the letters.
And it tells you that you owe a significant chunk of change in back taxes, penalties, and fines.
Which of course, creates a surge of panic and confusion. Because you think, “it was taken care of when I did my checks in QuickBooks, right?”
Luckily, you have a friend whose husband is an accountant, so you call her. She asks you to explain the situation and scan the letters so she can show them to her husband.
The next day you get a call from the husband. He’s got really bad news. He tells you that QuickBooks has been calculating how much to take out of your employee’s paycheck. But those amounts haven’t been going to the state or the IRS. And so, between the two agencies his quick calculation is that you owe them more than $100,000.
Between the two agencies his quick calculation is that you owe them more than $100,000 in back taxes and fines.
And of course, your panic boils over and you start crying. You are worried that you will have to close your business.
Payroll service vs. paycheck provider
This is the story that I heard the other day at lunch.
It started when I met up with Susan and Jennifer (I’ve changed their names to protect them). The question that prompted the story was innocent enough. Susan is in the process of hiring her first employee. And so she asked Jennifer and me what payroll service we recommended.
And then this story tumbled out of Jennifer’s mouth. And even though this happened a couple years ago, she’s still paying off her tax debts.
I’d never thought about the difference between a paycheck provider and a payroll service. But the potential impact of picking the wrong one is substantial. So if you’ve got employees, double check that you have a payroll service and they are submitting:
- your portion and your employee’s portion to the taxation agencies
- the required reports to the taxation agencies
- the required documentation to your employees
And when you start the process of hiring your first employee, keep this in mind. And don’t skimp on spending the money to hire a payroll service that will take care of it for you. Because I know you don’t want to end up with a six-figure bill to the IRS.
How you can easily apply this today
- Open up your bank statement and go to the last payday. Is the total withdrawn from your account higher than the sum of your paychecks?
- If it’s not, send an email to the individual or business responsible for your paychecks. In that email, ask how they are submitting funds to the taxation agencies.
Have you learned a lesson from a business owner friend? Share what you learned in the comments, so we don’t have to repeat that mistake too!