Delegation is the key to successful entrepreneurship. Proven talent can bring new expertise to critical areas of your operations while helping to drive innovation across your business. But before you can start reaping the benefits of recruitment, you must be aware of the true cost of taking on an employee.
Although you might think that your financial obligation ends with the payment of an hourly wage or salary, there a number of additional expenses that must be taken into account when budgeting for a new hire. These expenses can include everything from recruitment agency and job listing fees to onboarding and training costs, as well as contributions to employee health insurance, life insurance and retirement plans. Alongside these items, you must factor in the cost of setting up and processing payroll for your workers. Employers are required to deduct a wide range of payroll taxes from each employee’s paycheck and distribute them to the relevant government agencies. They are also responsible for paying an additional portion of payroll taxes for every employee.
As a leading New Jersey Small Business Payroll Company, we have helped clients across the state conduct accurate and timely withholding, filing and payment of their payroll taxes. With that in mind, here are some of the main obligations that every employer should be familiar with.
Under the Federal Insurance Contributions Act (FICA), employers are obligated to withhold a specific percentage of each employee’s paycheck, and make an additional contribution of their own towards these taxes. FICA encompasses two groups of taxes these are:
- Old age, disability, and survivor’s benefit taxes ( collectively known as social security taxes)
- Medicare taxes.
As of 2018, the social security tax rate for both employees and employers stands at 6.2% (up from 4.2% in 2011), with one portion being deducted from the employee’s paycheck and the other portion being paid separately by the employer which brings the total payment to 12.4%. Meanwhile, Medicare payments are taxed at a rate of 1.45% for both employees and employers. This brings total FICA payments to 15.3%
In 2018, the government instituted an additional Medicare surtax of 0.9% which is incumbent on all employees that earn salaries above a certain threshold limit based on the filing status of the employee. As of 2018, employers are required to pay the additional tax for joint filers in cases where their combined earnings exceed $250,000. Withholding for married single filers is triggered when their individual income exceeds $125,000. If an unmarried single filer is the head of a household or a widower then any earnings in excess of $200,000 will necessitate an additional deduction from their salary. This deduction must be made starting from the year in which the employee’s salary crosses the threshold limit. The employer will not need to match these contributions.
For tax purposes, wages are calculated on the basis of all salaries, hourly rates, bonuses, commissions, overtime, tips, and specific fringe benefits earned over a period. All social security taxes are subject to a wage base limit, which essentially means that an employee’s combined earnings cannot be taxed over a certain amount. In 2017, the wage base limit for social security taxes stood at $127,200.
If you’re struggling to identify the correct amounts to deduct and allocate for each employee then consult with professional payroll services in NJ. These service providers are up to date with current federal tax laws and they are well versed with all payroll tax considerations for businesses of your size.
The Federal Unemployment Tax Act requires all employers to contribute a certain amount towards government administered unemployment programs. Employers are also responsible for making an additional payment to the state unemployment fund (SUTA). Employees are not required to make contributions towards either of these sums.
It should be noted that every employer is not required to pay FUTA. There are certain stipulations in place governing which businesses are liable for payment, they are as follows:
- Any business that paid more than $1500 towards its employees in any calendar quarter of the current or previous year must pay FUTA.
- Any business that employed individuals for some portion of the day across at least 20 weeks of the current or prior year is liable to pay FUTA. All part-time and temporary employees are included in this measure, however partners are exempted.
Under FUTA, employers are required to pay out 6% on the first $7000 in wages earned by each employee across the year. That translates to a flat sum of $420 for every individual employed at your business. Certain earnings are exempted from this calculation. These include: wages earned outside the US, wages paid directly to family members, hospital intern wages, wages paid to students by theirs schools, and non-profit employee wages.
However, if an employer can prove that they have made all necessary payments to their state unemployment fund on time and in full then they can avail a discount on their tax rate. At the highest tier, this discount is worth up to 5.4% of your FUTA liability. The amount of credit offered can differ depending on whether you are located in a credit reduction state. Any state that is unable to cover unemployment over the course of a year can borrow additional funds from the federal government, if these funds are not returned to the government within two years then the amount of FUTA credit offered in the state will be reduced. In 2017, only California and The Virgin Islands were placed under this category. If you need further guidance on availing FUTA tax discounts then should consult with payroll services in NJ.
FUTA tax payments are made based on a business’s quarterly unemployment liability. If this liability exceeds $500 then payment must be made within the quarter (April 30, July 31, October 31, and January 31). If payments do not exceed this sum over the course of the year, then the annual FUTA payment should be made on January 31 alongside the Form 940 filing.
Employers in every state are required to pay a defined sum towards their state unemployment benefits program. Before hiring your first employee you should ensure that you are signed up with a state unemployment tax account. New Jersey employers can sign up for their state tax accounts through the NJ Department of Revenue.
The unemployment tax rate will differ depending on your business’s location and operating history. The state will assess your business’s turnover and past activity before assigning you an experience rating. This rating will determine your tax rate for the year. Most states will offer a flat SUTA rate for new employers. Over time, these rates will be adjusted based on how often your business lays off its employees, a track record of stable employment will generally entitle you to a lower rate. If you operate in an industry with high turnover such as construction then you will most likely pay a higher tax rate than employers in a less volatile sector. The state will generally send you a notice to indicate your SUTA tax rate for each year.
New Jersey State Unemployment Insurance (SUI)
At Sharp, we offer payroll services in NJ so we’re ideally placed to understand the tax environment in this state. Employers operating out of New Jersey need to be aware of the following details.
- In 2018, the wage base (maximum wage) on which taxes can be applied over a year is $33,700. Unemployment tax rates range from 0.5% to 5.8%.
- New employers are assigned a flat SUI tax rate for the first three years of operation, after this point a new experience rating will be assigned. For tax purposes a fiscal year runs from July 1st to June 30th.
- Employers can make certain voluntary contributions over the course of the year to lower their SUI liability. You can talk to a payroll service provider in NJ for help with this.
- Employers must file SUI taxes within 30 days after each quarter of the calendar year.
- Erroneous overpayments of unemployment benefits will not necessarily be reimbursed by the state. Consult with a payroll specialist in NJ to ensure that you are not paying more than you should.
Who Receives SUTA Benefits?
Unemployment benefits are paid to any employee who has become unemployed through no fault of their own (redundancy, mass layoffs etc). However, you may still be eligible for unemployment benefits if you have been fired provided that you were not terminated as a result of gross negligence or misconduct.
Every state will offer minimum requirements for the amount of time worked/amount of wages earned to qualify for unemployment benefits. Employees in New Jersey must demonstrate that they have worked for their past employer for at least 20 base weeks (determined based on when your claim is filed), and they must have earned at least $8500 over the year or at least $169 per week. The employee must also show that they are actively seeking new employment over any period in which they claim benefits.
Worker’s Compensation Benefits
Most states require employers to carry worker’s compensation insurance for their employees. This insurance is used to reimburse employees for income lost during the time they are employed with your business. These benefits generally cover:
- Injuries that occur as a result of job-related accidents.
- Fault is generally not an issue when deciding who is entitled to worker’s compensation.
- The insurance provider will generally pay for reasonable medical costs incurred as a result of the injury, wages lost during rehabilitation, and any benefits that are due for a documented permanent disability that arises due to a workplace accident.
- If an employee dies as a result of a job-related injury or illness then their dependents are entitled to survivor’s benefits. The employer must also cover all medical, hospital and funeral expenses incurred.
New Jersey Worker’s Compensation Benefits
In the State of New Jersey all employers who are not covered under Federal programs are required to carry worker’s compensation coverage. Insurance can be purchased either through the state or a private insurer.
All businesses will not be entitled to purchase private insurance, before going this route you must submit an application to the Department of Banking and Insurance. They will determine whether your business is financially capable of paying premiums on time. They will also assess your workplace safety record and the specific industry you operate in, to gauge your level of risk. If you do not qualify for private insurance then you are placed in a state pool which is administered by the New Jersey’s Compensation Rating & Inspection Bureau (CRIB). This body will assess your industry and operating history and assign you to a specific private insurer based on your rating.
In terms of compensatory benefits paid, the follow stipulations apply:
- All treatment costs, prescriptions and other expenses relating to the workplace injury are covered under this insurance. The employer is generally allowed to designate a primary physician to administer patient care.
- If a worker misses more than 7 days of work due to workplace injuries then they are entitled to 70% of the gross weekly wages that they would have otherwise earned. These benefits are capped at $896 a week. Benefits are halted when
- The employee is able to return to work
- The employee’s medical condition has been improved to the maximum level.
- Benefits have been paid for a period of 400 weeks.
- If the disability persists after this point then the employee is entitled to receive temporary benefits rate for as long as your disability continues. If the employee loses an eye, arm, leg, or feet, or hands as a result of their injury then it will automatically be considered permanent.
- In the case of a permanent disability the employee may be entitled to further compensation for scheduled and unscheduled losses.
- Worker’s compensation can also cover vocational rehabilitation for employees that are unable to continue in their jobs as a result of injury.
If an employee demonstrates a willful failure to provide worker’s compensation insurance to their employees then they may be liable for penalties of up to $5000, with an additional $5000 charged for every 10 days in which employees remain uninsured. The employer may also open themselves up to a civil lawsuit from the employee which could lead to far heftier losses.
Want To Find Out More About Payroll Taxes?
At Sharp we provide full service payroll in New Jersey for businesses of every size, in a wide variety of industries. Regardless of your requirements, we’re more than ready to deliver tailored recommendations that match up. You can get in touch with us online via our contact form, or call us at (732) 458-3800 to get $100 off on your payroll services. If you’re unsure about our service rates, check out the comprehensive breakdown on our site, or reach out to us directly for a quote.