Payroll without surprises

Pick a schedule, weekly or every two weeks, and keep it. Your state may set how often you must pay. Each payday, figure gross pay from the hours, overtime included. Withhold federal income tax based on the employee's W-4, the employee's 7.65% for Social Security and Medicare, and state income tax if your state has one. Then add your matching 7.65%.

Deposits are electronic: through your IRS business tax account, EFTPS or a payroll service. Your deposit schedule for each year depends on your payroll taxes in an earlier lookback period. Monthly depositors pay by the 15th of the next month. Semiweekly depositors pay by the Wednesday after a Wednesday-to-Friday payday, or by the Friday after a Saturday-to-Tuesday payday.

Example (made-up numbers, not a pay guide). A $10,000 payroll week. Federal income tax withheld from the W-4s comes to $900, and the crew's Social Security and Medicare to $765. Your matching share is another $765. The deposit is $2,430, and the $1,665 that came out of the crew's checks is trust fund money.

• Form 941 reports the income tax you withheld and both shares of Social Security and Medicare. It's due April 30, July 31, October 31 and January 31 (the next business day if that's a weekend or holiday), with 10 extra days if every deposit went in on time.
• Year-end: for 2026 pay, W-2s go to employees and the Social Security Administration by February 1, 2027 (January 31 is a Sunday). Form 940, for federal unemployment tax, is due the same day.
• Your state: unemployment reports and state withholding, on your state's dates.
• A payroll service can do the math, deposits and filings, but the IRS holds the employer ultimately responsible. Get your own EFTPS login, check the deposits, and keep the IRS address as your own.
• Workers' comp audit: the premium starts as an estimate. After the policy year, the insurer checks actual payroll by type of work, so keep payroll split by job type and keep a certificate of insurance from every sub.

Income tax and Social Security and Medicare withheld from employees are trust fund taxes. If they aren't paid, each responsible person can be held personally liable for a penalty equal to the unpaid amount. A responsible person is anyone with the duty and the power to collect and pay the taxes, owners and anyone who decides which bills get paid included. The IRS treats paying suppliers instead of these taxes as a sign the failure was willful. Never use payroll tax money for anything else.

If payroll is ever short, treat it as a warning that cash in and cash out are out of step, not as a reason to borrow. Cut your own pay first, collect what's past due, ask suppliers for more time, and call your CPA before payday. Never cover it with withheld tax money, and never with a merchant cash advance or other daily-debit financing. Business Finance 102: Bank-Ready builds the 13-week cash forecast that shows a short week coming.

Non-exempt employees get at least 1.5 times their regular rate for hours over 40 in a workweek, paid on the regular payday. The workweek is a fixed 7-day period you set, and hours can't be averaged across weeks. A day rate or a flat weekly amount doesn't remove overtime; it's figured from the hourly rate that pay works out to.

Example. A crew member works 30 hours in a rainy week and 52 the next. The second week has 12 overtime hours, so it pays 58 hours' worth of the regular rate (40 + 12 × 1.5). The rainy week doesn't cancel it.

Training and meetings count as work time unless all four are true: they're outside normal hours, voluntary, not job related, and no other work gets done. So the required 6:30 safety talk at the shop is paid time. So is the drive from the first lot to the second.

• IRS: Employment tax due dates
• IRS: Employment taxes and the Trust Fund Recovery Penalty
• IRS: Outsourcing payroll duties
• Labor Department: Fact Sheet 22, hours worked and Fact Sheet 23, overtime pay