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Online Bookkeeping Solutions Blog

The Online Bookkeeping Solutions Blog is an timely collection of interesting and helpful information for those companies who want to outsource their bookkeeping solution and utilize bookkeeping services by subscription. Outsource your bookkeeping to a cloud based solution backed by experienced CPA's.

Employee or Independent Contractor – And How This Impacts Your Payroll

On the surface, an independent contractor may not appear different from a formal company employee. Both an independent contractor and an employee may work on the same projects, share the same office space, and work the same hours. But from a tax and payroll perspective, the differences between an employee and an independent contractor are substantial.

What difference does it make to classify a worker as an independent contractor instead of as an employee? Here are some of the responsibilities an employer has towards an employee:

  • Employer Payroll Taxes. Employers owe, and must remit, their own share of payroll taxes, such as FICA and federal and state unemployment insurance, on employee wages.
  • Reporting. Wages paid to employees (along with the amounts of the various taxes withheld) are reported on Form W-2; amounts paid to contractors are reported on Form 1099. Additionally, Forms 940 and 941 (and perhaps others) must be filed for wages paid to employees.
  • Employee Benefits. Employees generally enjoy employer funded benefit programs such as vacations, holidays with pay, health insurance and pension and profit sharing plans; contractors generally do not receive these benefits.
  • Employee Withholding. Employers are responsible for the withholding and timely remittance of federal income taxes, state and local income taxes, and FICA taxes from wages paid to their employees.
  • Labor Laws. Worker’s compensation, working condition, and minimum wage laws all impose on employers certain financial and other requirements for the benefit of employees.

With more and more companies using independent contractors, the IRS and State Unemployment and Revenue departments are growing increasingly suspicious that companies are trying to avoid withholding and payment of payroll. Thus employers need to use caution in the classification of their employees. If an employer misclassifies an employee as an independent contractor with no reasonable basis for doing so, that employer may be held liable for employment taxes and penalties.

The following three guidelines exist to determine whether a worker is an independent contractor under common law:

  1. Behavioral Control – If the business directs or controls how the work is done through instructions, training, or other means, the worker is an employee.
  2. Financial Control – If the business controls the financial and business aspects of the worker’s job, you are dealing with an employee. These questions will guide you to classifying a worker as a contractor:
    • Does the worker invoice the company
    • How the business pays the worker
    • Does the worker have un-reimbursed business expenses
    • Does the worker make his services available to the relevant market
    • Can the worker realize a profit or incur a loss
    • Does the worker invest in the facilities used in performing services
  3. Type of Relationship – How do the parties perceive their relationship? This includes things like:
    • The permanency of the relationship
    • Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay
    • Written contracts describing the relationship the parties intended to create
    • The extent to which services performed by the worker are a key aspect of the regular business of the company
    • The extent to which the worker is available to perform services for other, similar businesses

Simply stated, if you have behavioral control and financial control, you likely have an employee.

 

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Make Your Business Paperless

The paperless office is on the rise. Most offices either already have the tools to go paperless or can acquire them at a low cost. The barrier is mostly the will to do so. Some people don’t see the need, or have a hard time giving up paper, or simply find it hard to change their habits. But there are significant benefits to be gained from operating a paperless office.

Benefits of a Paperless Office

One of the biggest benefits of getting rid of your paper files is the cost savings. Consider the following example. If it takes five minutes to retrieve and replace a paper file and an employee works with ten paper files per day, that’s 216 hours a year – over five weeks’ time – spent walking files around. At $20/hour, that’s $4300 per year. A paperless method would eliminate these costs while still ensuring employees can find and work with all of their necessary documents.

Other benefits include increased security, better disaster recovery protection, environmental benefits, and remote access for your important documents.

Getting Started – Making the Move to Paperless

Having a proper plan in place to take your office paperless will help keep you from ending up in a messy situation. Here are some tips and tools to help you along the way.

  • Instead of printing and storing important documents in filing cabinets, save them online.
  • Look into a document management system to help keep the office’s files organized efficiently.
  • Convert previously “paper-orientated” tasks to digital ones. For example, make electronic to-do lists? and use a projector screen in meetings instead of paper handouts.
  • Instead of exchanging business cards, connect via LinkedIn, Facebook, or Twitter. Social networks keep your contacts’ information current and provide a better storage methodology for keeping your contacts’ information on hand.
  • Use a scanner to convert paper documents like faxes, invoices, etc. into digital formats. You can then shred your old documents and eliminate even more paper clutter.

Keep in mind, a paperless office doesn’t happen overnight. Schedule time realistically for your office’s migration to the paperless world. Dedicate a certain amount of hours per week towards tasks such as scanning documents online. Make a calendar of when you plan to implement the various components of going paperless, and be prepared to educate your employees on the new ways they should be conducting their work.

Realize that less paper is just the beginning of the payoff

The most immediate impact of a move to a paperless office is the reduction in the cost of printing, mailing, shipping and storing paper. Over time, lots of other benefits should become apparent, such as:

  • Less time spent looking for paper lost in the shuffle
  • Fewer hours spent looking for bills, documents, and copies of client documents
  • The ability to access all sorts of information from computer files in a matter of seconds, instead of searching through your office

Do not be daunted by the process of switching to a paperless office. In the end, the cost-savings, better organization, and other benefits are well worth investing in this endeavor.

For those of you who’ve already taken some paperless initiatives in your office, what results have you noticed?

 

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Start Your Day Off Strong – Review Your Financial Dashboard

It’s 8 a.m. Monday morning. After a nice, relaxing weekend, it’s time to get back to work. Your mind might be in a million places but you need to focus on your business. You grab a cup of coffee and turn on your computer, but where do you begin? You run an entire company and there are many intertwined and complicated financial situations that you oversee. You need to know where your company stands, what the latest finance reports really mean, and what overall issues take precedence and need your attention.

As an entrepreneur, chances are you are quite knowledgeable in the area of finance. But that doesn’t mean you have the time for complicated math or to analyze the complex web of finances that comprise your company’s day-to-day operations. This is exactly why a financial dashboard would benefit you.

Just like your car’s dashboard gives you a visual snapshot of your engine’s performance, operations, and warns you of any problems, a financial dashboard gives you a quick and real-time view of your company’s “financial engine.”

A good financial dashboard has the capacity to provide you with an organized, visual display of pertinent information about where your company is at, in real-time. It does the complicated math, the financial and operational analysis, and alerts you of any potential business problems, so that you can be proactive rather than reactive.

So again, imagine that it’s 8 a.m. Monday morning and you are turning on your computer to start the week. You turn on your financial dashboard. In 30 minutes, you ingest your business’s key operational and financial measurements in an easy to read graphic format, with a one paragraph analysis and explanation from the finance team. You review a high-level overview of sales, costs, productivity, and financial highlights from the previous week. And, in the same 30 minutes, you are alerted of any red flags that could potentially jeopardize your business, thereby enabling you to be proactive, rather than reactive.

Knowing that your business is in good health, your day is already off to a strong start. You can proceed to your 9 a.m. meeting worry-free and confident about the performance of your company – thanks to your financial dashboard.

Stay tuned for a future post on how to best customize a financial dashboard to meet your personal needs.

 

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