Get Paid
Lesson 4 from: The Small Business Simple Guide to FinancesAmy Northard
Get Paid
Lesson 4 from: The Small Business Simple Guide to FinancesAmy Northard
Lesson Info
4. Get Paid
Lessons
Know Your Worth
1The Foundation of Your Business
09:38 2Creating a Usable Bookkeeping System
05:52 3Taxes
06:45 4Get Paid
05:48 5Small Business Deductions
06:30 6Retirement Contributions
06:12 7Income Statements
05:26Balance Sheet
05:39The Foundation of Your Business
Lesson Info
Get Paid
1 (upbeat music) 2 Welcome to lesson four. 3 Today we'll be discussing everything you need 4 to know about hiring and paying workers. 5 Our four goals for this lesson are: 6 decide if you've hired an employee or a contractor, 7 understand how to file 1099s for contractors, 8 understand how to pay employees, 9 and know how and how much to pay yourself. 10 Let's jump in with the first thing you'll need to do 11 when you hire someone. 12 The first step 13 is to decide if this person will be classified 14 as an employee or a contractor. 15 You'll need to know this because there are laws 16 about how you can treat one versus the other, 17 and there are tax implications for whichever you choose. 18 If you hire an employee, the worker is generally required 19 to be at a specific place for a required number of hours. 20 They get paid a salary or an hourly rate, 21 and are usually provided with all of the equipment needed 22 to do the job, 23 and here's the important tax part for you. 24 An e...
mployee has taxes taken out of their paycheck. 25 On the other hand, if you hire a contractor, 26 they can typically do the work on their own time 27 without the need to be monitored. 28 They can also accept or deny work. 29 Most contractors are paid a flat amount 30 once the job has been completed. 31 They use their own equipment, 32 and don't usually require training to do the job, 33 and here's the important tax part for you. 34 A contractor will likely be issued a 1099-NEC, 35 which we'll talk about more in a minute. 36 Some examples of contractors include: 37 second shooters for photography, 38 website designers, and copy editors. 39 Now, remember, not every situation is black and white, 40 and some agreements may fall into a gray area. 41 If that's the case, step back, 42 and think about why this person has been hired. 43 Is the job they're doing necessary in running your business? 44 If so, they'll probably be considered an employee. 45 If they aren't completely necessary, 46 then they're most likely a contractor. 47 So if you've determined that you've hired a contractor 48 and not an employee, 49 then you may be required to issue them a 1099-NEC. 50 You're required to give a 1099-NEC form to any contractor 51 that you pay $600 or more for services during the year. 52 You don't need to give 1099s to corporations 53 or to anyone you only paid for goods. 54 You also won't need to give one 55 to anyone you paid using PayPal Business or credit cards 56 since those processors are responsible 57 for reporting their own information. 58 You must distribute the 1099s 59 and send them to the IRS by January 31st. 60 If you have to file 1099s, don't stress out. 61 They're pretty easy to DIY. 62 I suggest first gathering a list of names 63 and a W-9 from each person. 64 Then, find an online filer, like 1099online.com, 65 where you'll enter the payer, payee, and total amount paid. 66 Then, you'll just review your work and electronically file. 67 It's really as easy as that. 68 Now, if you've determined that you've hired an employee 69 and not contractor, 70 you're going to want to set up payroll. 71 I highly suggest that you hire a payroll company 72 to do this for you. 73 The only one I recommend to my clients is Gusto 74 because they take care of all of the paperwork, 75 and they have exceptional customer service. 76 You'll also need to apply for an employer ID number 77 through the IRS website like we discussed in lesson one. 78 If your state requires it, 79 you'll apply for a state withholding tax ID number, 80 and possibly an unemployment tax account as well. 81 Then, make sure your new employee completes all 82 of the necessary paperwork. 83 If you have a payroll company, 84 they should walk you through this. 85 Just remember that when you have an employee, 86 you have a payroll, 87 and when you have a payroll, 88 you have to file tax forms 89 at both the state and federal level. 90 Now, we've come to my favorite topic, 91 how to show yourself the money. 92 If you're a sole proprietor 93 or a single member LLC, 94 you can just transfer money to yourself 95 as often as you need. 96 This will be recorded as an owner's draw 97 and not categorized as wages or expenses. 98 But remember, don't use your business funds 99 to make personal purchases. 100 That can lead to messy bookkeeping, which is no fun. 101 The other thing to remember here is that regardless 102 of whether you've paid yourself, 103 all income left after business expenses is taxed. 104 If your business is a partnership, 105 you'll refer to your partnership agreement 106 before taking money out of the business. 107 And if your business is an S corporation, 108 there are two ways to pay yourself as the owner. 109 One way is to pay yourself through payroll, 110 and the other way is to take a shareholder distribution. 111 Remember that you're required 112 to pay yourself a reasonable salary first, 113 which means setting up payroll 114 with tax withholdings. 115 On top of your salary, 116 you may also compensate yourself with distributions 117 that won't be subject to employment taxes. 118 For more information 119 about what's considered a reasonable salary, 120 make sure to check out the resources in our lesson guide. 121 Now, it's checklist time. 122 Use the checklist at the end of the lesson four guide 123 to walk through the process of paying everyone. 124 In our next lesson, we'll dive into the exciting world 125 of small business deductions. 126 I'll see you in lesson five.
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