Seattle Area Business Owners Braving Risk, and July Employment Data

     It's an interesting time. We saw an increase in protests in downtown Seattle (and in other areas of the country) pushing for a $15 minimum wage for fast food workers. Protesters pressuring other minimum wage workers to join them with chants of "You don't need the boss; the boss needs you!" For the record, I believe the employer-employee relationship is a symbiotic one. Tom Douglas gave some of his employees an increase of $15 per hour, but thinks the government should stay out of it (applause to Tom from me, for sure). 

     We sit on the eve of Oct. 1st, a kick-off compliance day of the Affordable Care Act, when employers are to notify employees of their coverage options under their respective state and/or federal SHOP exchanges and beyond - here in Washington, those coverage options haven't been rolled out, due to delays...so we wait.

For Small Business Employers considering hiring, it would be easy to hear only one thing - RISK

     BUT...this month I worked with an influx of start up companies, as well as a number of companies who decided to move from in-house to outsourcing of payroll compliance services. They wanted to capture back their time and hurdle risk; not ignore it, and not run from it. Each of these local owners, officers, and managers, from different industries, and with different backgrounds, has a positive-growth outlook for their economic future and made the decision to move forward in spite of the surrounding risk. They will be hiring.

     That's Entrepreneurship. That's Ownership.

Data Overview:

Small businesses with 1-19 employees had a net gain of 82,000 jobs nationally in July (ADP/NER)

Professional/Business Services Industry had a net gain of 49,000 jobs nationally (ADP/NER)

US Franchise Jobs growth slowed to just over 12,000 in July (ADP/NFR)

WA State had a gain of over 6,000 jobs (ADP/RER)

WA State Preliminary Unemployment Rate dropped to 7.4% in July (BLS)

WA State private sector has added an estimated 74,000 jobs in the last year: July 2012-July2013 (BLS)

The Future of Seattle Area Restaurant Ownership?

     There is a case to be made that restaurant ownership is going to require a more skilled and knowledgable business owner in the future. Some major regulation changes and other surprising challenges have made their way onto the plates of restaurant owners, and not everyone is going to like the taste of things to come.
     The Employment Policies Institute recently published results from a survey and study entitled Paid Sick Leave in Seattle: Examining the Impact on the Service Industry. The Seattle paid sick leave mandate officially rolled out last September and has had some time to make an impression on the restaurant community and service industry at large in the Seattle area. The EPI survey found that more than one third of the respondents have executed on cost cutting/revenue raising measures in response to the mandate, and "roughly 56 percent said it would increase their cost of doing business in Seattle."
     Protests have been picking up steam in the Fast Food Industry as the debate over a $15 minimum wage has caused people to take to the streets in Seattle and other cities. Washington State already boasts the highest minimum wage of any state in the country, but part of the cause of this discussion may be the shift in the demographics of our local restaurant industry workforce. The Washington Restaurant Association reports that the percentage of teenagers in the restaurant workforce has dropped from near 20% in 1998 to an estimated 5% today, surrendering to an older, post-recession workforce. An older workforce generally has more liabilities and more obligations, requiring a higher income.
    Add in new regulations accompanying the Affordable Care Act coming this Oct. 1, and you have some blustery winds of change blowing through an industry already known for its low margins and long hours. More regulations to comply with and rising labor costs may mean an increase in prices for customers, but coupled with the decrease in the younger workforce, will more restaurant owners change the way they run their business?
     Tomorrow's successful restaurants could operate like today's successful professional services companies from an employee management perspective. With the smallest errors seriously depleting already thin margins, will an industry notorious for its turnover focus its attention on stronger HR and better employee management in an effort to reduce turnover, minimize unemployment claims, and decrease hiring and training costs? The money to afford these new regulations and rising labor costs has to come from somewhere. A highly trained, more financially stable, tenured workforce could supply the type of experience required to deliver high quality service - the type of service that could support an increase in customer pricing.

June Jobs Data and Thoughts on Current Small Business Challenges in WA State

Two new clients I worked with in June provide this month’s theme:

                  (1) A small construction company of 5 employees, marred by turnover, was trying to process payroll, deposit taxes, and pay garnishments themselves, struggling with the myriad of compliance challenges with doing so. The tasks ate up their time and frustrated their business, culminating in tax penalties and personal stress.

                  (2) A small flooring company looked to get mobile in their payroll technology to gain the ability to process payroll on the jobsite, and to accurately communicate pay information to employees, using a mobile device.

                   Echoed from last month’s job growth, June brought with it a significant increase in jobs across a number of sectors including the construction (21,000 new jobs according to the ADP NER) and restaurant (21,000+ new restaurant franchise jobs according to the ADP NFR) industries. The great thing about these industries is they often offer entry level employment opportunities alongside more tenured jobs, inducing more financially diverse employment opportunities for those in search. The challenging side about these industries, from a business owner perspective, is they tend to be more seasonal, carry a higher rate of employee turnover, and carry a higher risk  of employment in terms of compliance—i.e. garnishment payment processing, unemployment claims, etc…

                   The small businesses that support these industries are looking to not only manage compliance, but to provide quality communication to their employees in terms of their hours worked and pay, in an effort to minimize turnover. They are also trying to get more done in less time, opening a new wave of mobile payroll prospective clients interested in such services.

Data Overview:

Small businesses with 1-19 employees had a net jobs gain of 84,000 jobs nationally (ADP/NER)

Professional/Business Services Industry had a net gain of 40,000 jobs nationally (ADP/NER)

Restaurant Franchise Jobs grew by over 21,000 in June (ADP/NFR)

WA State had a gain of over 6,000 jobs (ADP/RER)

WA State Preliminary Unemployment Rate is 1.6% lower than at the same point last year, June 2012 (BLS)

WA State has added an estimated 67,000 jobs in the last year: June 2012—June 2013 (BLS)

What the May Jobs data means to Washington State Employers

Two new clients I worked with in May provide this month’s theme:

                 (1) An independent contractor for years, providing a professional service, this business owner decided to invest in a retail space and hire on her first employees. With no previous experience in managing employees, her biggest concern was compliance—how to report what information, and to which agency, in order to avoid fines and penalties.

                 (2) The owners of an expanding doctor’s office, knowing they deal with sensitive client information (HIPAA Regulations, etc...), were looking to reduce their exposure during the hiring process by performing background screening of candidates as well as establishing company wide policies for better employer to employee communication of industry compliance standards.

          I’m always interested when a new business tax deduction or tax holiday is proposed via government in an effort to spur business hiring. In the small sample of business owners I bring on each year (75-100), most will tell you it is not tax breaks they want as an incentive for hiring, but risk mitigation—lower the level of risk that comes with hiring on a new employee.

          As more SMBs embark on the journey of employment growth, options for compliance and risk management are becoming increasingly more sought out. And knowing as they do, business owners are concerned about their increased chances of state or federal audits as our governments struggle to find new sources of revenue to bridge their increasing budget gaps —and the tidal wave of this trend is coming...as 2014, the year of the Affordable Care Act, looms.

          With that being said, employment growth is happening, which is wonderful news—And here in the Greater Seattle Area, when we look at the local unemployment rate, we should feel particularly optimistic about our prospects to make of our future what we wish. Cheers.

Data Overview:

Small businesses with 1-19 employees had a net jobs gain of 37,000 jobs nationally (ADP/NER)

Professional/Business Services Industry had a net gain of 42,000 jobs nationally (ADP/NER)

Business Services had the 2nd largest jobs growth by industry in Franchise Employment (ADP/NFR)

WA State had a gain of over 3,000 jobs (ADP/RER)

WA State Preliminary Unemployment Rate dropped to 6.8% (BLS)

Seattle/Bellevue/Everett Preliminary Unemployment Rate dropped to 4.7% (BLS)

Payroll: Getting Started Guide to Washington State

Congratulations, you're ready to hire your first employee in Washington State!

Here's a short checklist guide of the items you'll need to get set up properly for your first payroll.

When doing payroll in Washington State we have 3 main tax agencies that cover payroll taxes. (Reminder: We have no State Income Tax...yet)

1. IRS - Federal Taxes
2. WA State Employment Securities - the office of Washington State Unemployment
3. WA State Labor and Industries - the agency covering Worker's Compensation Insurance

In order to File and Pay Federal Payroll Taxes, and there are a number of them, your company must have a Federal Employer Identification Number (FEIN or EIN for short). You can apply for an EIN online or complete and submit a hard copy SS-4 Form application. The online application gives you an identification number and receipt of completion instantaneously, and tends to be the preferred option.

The Department of Employment Securities requires an assigned identification number (called an ES Reference Number), as does the Department of Labor and Industries, in order to properly pay their state specific payroll taxes. To obtain both ID numbers, a Washington State Master Business Application must be filed indicating you are now hiring on employees - in doing so, both the Department of Employment Securities and the Department of Labor and Industries will issue identification numbers upon receiving the correctly completed Master Business Application, which can be completed online.

Once you have your three tax identification numbers you'll want to be sure your new employee(s) complete(s) their W4 Form so that you or your payroll company will be able to calculate that individual's payroll taxes accordingly.

Once you've gotten your Tax ID numbers and W4 forms, you can process payroll. There may be some other tax or compliance requirements based on your employee count and/or location of your business, so be sure to consult your CPA or business advisor. Also, there are a number of compliance items to tackle like New Hire Reporting and hopefully you've had your employee(s) complete their I9 Form for Homeland Security purposes.

If you're willing to take on the burden of payroll compliance on your own be sure to review IRS Publication 15 - the Employer's Tax Guide, as well as Employment Securities and Labor and Industries filing and depositing requirements.

If you feel better served having a professional service company take over payroll duties, feel free to contact me at Randy.Harris@adp.com and we can quickly explore if some of our small business payroll services options could ease your concerns. We process payroll and file & deposit payroll taxes for companies with as few as one employee in Seattle, Bellevue, and all corners of Washington State. Reach out for a discussion today.

Payroll Taxes Ranked #2 in Top Burdens for Small Business Owners

The 2013 Small Business Taxation Survey was just released by the National Small Business Association (NSBA) in the days leading up to the 2013 April 15th Tax Filing Deadline and Payroll Taxes Ranked #2 in both the Top Administrative and Top Financial Burdens of small businesses. 


A note from the forward in the survey...

"When it comes to payroll taxes, one-third of small businesses report spending more than six hours per month on the administration of payroll taxes, which, while it may not sound overly burdensome, amounts to more than 72 hours per year, or nearly two full work weeks."


That's an eye opening amount of valuable time, and the study asked if small business owners were outsourcing payroll in order to reduce their time spent on payroll administration:

40% of the respondents said they "Use a Payroll Service Like ADP or Paychex to prepare...payroll" 

and...

"...one in three report spending more than $500 per month on payroll services"

While most of my small business clients tend to spend in the $100 to $300 per month range, it is interesting to note the amount of small business employers choosing to outsource coupled with the amount business owners are willing to pay to reduce their payroll tax administrative burden.

Most of the small business owners I work with tell me (as a reason they are choosing to outsource):

1. They have little knowledge of payroll tax compliance regulations 
2. They have some knowledge but don't have time to learn all of the payroll tax compliance regulations
3. They are knowledgable of payroll tax compliance regulations but it is more cost effective to outsource than to perform payroll administration themselves

Based on personal experience over the last ten years, most owners and accountants are interested to learn of how many small business owners outsource payroll services with just one or two employees. During our conversation, I can often reference a one or two employee company I had just set up in the current or previous week that had made the choice to outsource.

With time savings becoming ever more valuable in the struggle to operate a successful business, it seems to be becoming more justified to outsource a compliance function like payroll services - which, at the current rate of government regulation changes and requirements, may become more and more of a necessity and less of a convenience. 

Payroll Services Can Provide Check Fraud Protection

Small business owners, have you ever been afraid of check fraud against your company due to a company issued payroll check?

Seattle, like most other major cities, has had a history of this problem.

If you have 10 employees that you pay with live checks twice a month. That's twenty pieces of paper out there with your bank account information (and signature) every month, just from payroll.

In their 2012 Report to the Nations, The Association for Certified Fraud Examiners (ACFE) revealed a few key challenges...

"Check tampering was three times as common and payroll skimming schemes were noted almost twice as often in smaller organizations than in their larger counterparts"

"Most occupational fraudsters are first-time offenders with clean employment histories. Approximately 87% of occupational fraudsters had never been charged or convicted of a fraud-related offense, and 84% had never been punished or terminated by an employer for fraud-related conduct"

If you're worried, here's something to look into if you have to pay employees via check...

Most payroll services now offer a check fraud protection service whereby payroll checks are drawn off of the payroll services' bank account. The checks issued then have the payroll services' signature and bank account numbers on them instead of your company's.

The NFIB made some recommendations last year to reduce a businesses chances of experience payroll check fraud. #5, Positive Pay, is an additional service, with an additional cost, on the banking end - but your payroll services company may likely have a Check Fraud Protection Option...which you can also pair with the NFIB's recommendation #7, Direct Deposit.

Setting Up Payroll for Employees in Multiple or Different States

Setting up payroll for employees in multiple or different states can be tricky as most employers, (especially small business owners), and most people in general have likely only had experience paying payroll taxes in their home state.

Technology has made it possible for small business owners to reach across state lines, coast to coast, and beyond to find the most capable employees to fit their company vision and do 'the work.' This type of reach has expanded the wonderful possibilities of business for these companies and allowed them to find talent that may not be available to them locally, but it has also created some challenges in terms of payroll processing that can impact the business from a compliance standpoint and from an employer-employee relationship standpoint.

These types of issues can result in penalties, fines, and employee turnover - which can be costly.

The most important thing to remember is that every state is different and even some cities and local municipalities have their own taxes that may need to be deducted from the employee's pay depending on where they live, where they work, or both.

Below are some of the 'State Level Taxes' to watch out for.

State Income Tax
State Unemployment Tax
County Taxes
City Taxes
Local Taxes (School District Taxes, etc...)

These taxes may or may not apply depending on the state, city, or county the employee is employed in. Also, it is VERY important to take note of where the employee lives and where the employee works - which may be two different states (this occurs quite often in certain regions of the country) - and you will be paying different state taxes to the lived in state vs the worked in state.

The IRS and State Governments are watching you to make sure you're in compliance and your employees are counting on you to get their paycheck calculation correct.

I see a lot of small business owners in particular lean toward outsourcing in these situations. I have numerous 2 to 7 employee companies that carry employees in 2, 3, 4, or more states, and the compliance risk is often something more cost effectively managed by a payroll processing company.

If this is something impacting your small business and you have questions about what outsourcing looks like, free to reach out to me via phone or email.

Making a Mid-Year Switch in Payroll Services

Making a Mid-Year Switch to a Payroll Services Company isn't as challenging as it used to be and shouldn't cause you to lose any sleep.

Many years ago, a mid-year conversion would cause employees to receive two W2s at year end, and make the current quarter filings a potential mess.

Thank goodness technology has caught up.

I generally see the following scenarios when bringing on a new client for payroll and tax filing services...

Current System - Transitioning To - Payroll Services Company

1. In-house payroll (using software) - to - Payroll Services
2. Manual payroll (using spreadsheet docs or doing payroll by hand) - to - Payroll Services
3. Payroll Services (using another p.s. company) - to - Payroll Services
4. Accountant/Bookkeeper - to - Payroll Services

In any of these cases, the same approach is usually taken with the Payroll Company:

• You'll want to exchange copies of the Quarterly Filing Reports (Both Federal and State(s)) for any of the Quarters that have passed so far this year.
• You'll want to exchange payroll reports for each payroll so far in the current quarter, so that they can accurately file and deposit for the current quarter.
• You'll want to grab a Year to Date Payroll Report (Jan. 1st - Today)
• In both the per payroll reports and the year to date report it is important that those reports be broken down as follows:

Employee Name: Hours worked | Gross Pay - Taxes - Deductions = Net Pay

This is done to make sure the Payroll Company knows who's been paid what, and what taxes and deductions have come out of who's pay.

After that you're just looking to pass along Employee W4 information and possible Direct Deposit Information if applicable.

The Payroll Company may want to see receipts of tax payments made so far during the current quarter and may ask if there are any taxes due from previous payrolls you would like them to deposit on your behalf.

After your new Payroll Services Company has set up your account, and before you begin processing payroll with them, you'll want to verify that the data in their system matches that of the data on the reports you turned over or uploaded to them.

Verify the Employee Data as well, but its a good best practice to ask your employees to verify their W4 information on their first paystubs also.

Keep an eye out and don't be afraid to ask questions. And while service and results will always vary based on individuals and companies involved, there shouldn't be any technical reason to hold back in making a change in Payroll Services mid-year if you trust the people you're working with and they have a solid history of helping other companies make a transition.

Payroll Taxes Go Up for All in 2013

Prediction: About two weeks from now, an employee at your company is going to call on human resources, or their manager, or the business owner, or you, and ask this question:

"How come I'm getting paid less, they passed the fiscal cliff thing...?"

I'm being facetious of course, but the newly passed 'fiscal cliff bill' has been highlighted as keeping a tax increase from hitting 98% of Americans.

...And that is true in regards to federal income taxes, but what was interestingly (and likely intentionally) left out of the President's late night speech on Jan. 1 was the sunset of the social security payroll tax holiday.

As a result of that sunset, the employee portion of the social security payroll tax will increase in 2013 from 4.2% to 6.2%. Click here for the new IRS Guidance.

A 2% increase for a family earning $50,000 means $1,000 less in take home this year. A family earning $100,000 takes home $2,000 less this year. There is a cap on the tax at $113,700.

Unfortunately today, very few working employees truly understand the taxes and calculations that impact their paycheck. Business owners, managers, and hr directors are likely to have to deal with a number of questions around this fact over the next number of weeks.