Paying Your Employees- Legitimately

Are you employees paid under the table? That is a common practice among the construction industry. However, there are some major benefits to your employees by paying them with a legitimate paycheck. Honest employees are often attracted to a real check. That said, you might want to think about starting this practice.

Initially, the extra paperwork and cost of social security and other employee taxes may seem like a hassle to you and your wallet, but it will pay off with better employees- and serious trouble with the IRS. If you have any questions about this change, or how to do this from the start, you can request literature about the differences between employees and
subcontractors. This is available online at www.irs.gov. The IRS can find out about you treating employees as subcontractors easier than you think.

For starters, there is always an audit. And second of all, a disgruntled employee, or even competitor can report you to the IRS. Think about a major competing company who knows your pay scheme is what allows you to undercut them. They could get tired of losing to you, and play some hardball. It has happened.

So, not only can this benefit you as a business, but also your employees. The paycheck itself is a huge benefit for the employee. Many employees who get cash may have to wait for their money, or it may come at sporadic times. Having a set payday is a good way to gauge when money will be coming in. The amount may of course vary from week to week, but knowing that a check is coming is very satisfying.

I have a good friend Dave who works with his friend Ron. Ron is a subcontractor of someone else, Tony. Tony writes one check to Ron, which includes Dave’s pay. Ron in turn writes Dave a check.

Here’s the problem. Many times, Tony will tell Ron to hold the check until a certain day. Once Ron deposits the check, he has to wait until it clears to pay Dave. This frustrates Dave, but he puts up with it because he gets paid very well. I would not put up with that, and would welcome a steady, legit paycheck any day. So, in essence, Dave technically is due his wages on a Friday, but may have to wait almost a week before the money is available to him. So, a legit paycheck can alleviate the ‘paycheck’ woes that “Daves” across the country face.

Other benefits of a legit paycheck include employers contributing 8% of their wages to their own social security, unemployment insurance, disability insurance, worker’s compensation insurance, liability insurance and tax deductions are made by employers, making taxes easier to file. Many of these paycheck benefits will protect employees should they fall sick, get injured or need to be laid off.

Contact some local payroll companies for rates and services. Talk with other small business to see whom they recommend. The time the billing company can save you is worth it. Their professionalism, accuracy and knowledge of taxes and payroll procedures can be a godsend.

Beware though, as some employees may not welcome this change. This is because they are so used to getting cash or a personal check, thus evading Uncle Sam! If someone is a tax cheat, that could mean they cheat at other things as well, and it may not be so bad if they are not in the payroll.