Do I Need to Bundle Payroll with Health Insurance Payments?
Running any kind of business, big or small, can be incredibly costly for the owner. When dealing with payroll or health insurance, there are so many hidden expenses and surprising legal requirements to handle that it can all become overwhelming at first.
When working with a Professional Employer Organization (PEO) like Canal HR, there are many benefits. Because our employee pool is expansive, we can save our clients serious money by handling their payroll and health insurance. Is it worth it for you and your business to save money by bundling these two services with Canal HR?
Bundling Payroll with Health Insurance Payments
What to Know About Payroll Processing
Payroll processing is crucial, as paying employees late or filing taxes incorrectly may result in severe penalties or force you to pay interest in back taxes. Unreliable payroll can also damage employee morale and hurt your business’s reputation, which you always want to avoid. With this in mind, it’s no wonder that many companies find that it’s a high priority to dedicate all the necessary resources – be it time or money – to be sure of getting payroll right every time. You have some options, depending on the size of your business: you can do it yourself, purchase payroll software, or work with a managed payroll provider like Canal HR.
The rule of thumb is that having an employee costs 1.25 to 1.4 times an employee’s actual salary. If you pay someone $40,000, the actual cost is around $56,000 for the business. Part of this expense comes from payroll processing. When you do payroll processing on your own, you’re not just making sure paychecks go out on time; you also have to calculate taxes, collect payroll-related files, train payroll staff, monitor changes in tax rules and regulations, calculate tax liability, set up pre-tax benefit plans, and much more. Doing the payroll processing in-house is a time-intensive process that requires a rigorous understanding of the legal requirements and financial aspects of running a business.
All workers must be classified as either employees or independent contractors to comply with federal payroll tax laws. The status of employees requires classification before beginning payroll processing. The steps to do this are:
- Decide on the nature of the work. A worker may be an independent contractor if you have the right to control or direct the final result, not the process. If you control when and how the work will be done, then that worker is usually an employee.
- Determine if payroll deductions apply. Only employees – not contractors – have withheld income for taxes, including social security tax and Medicare tax, on wages paid. Contractors pay self-employment tax on their income when they file themselves.
- File Form W-2 and Tax Statement with the IRS for employees. You must include all forms of compensation paid to employees, including wages and tips, along with information on withheld taxes.
- File Form 1099-NEC Nonemployee Compensation for independent contractors. You must report payments of $600 or more to nonemployees such as contractors. The completed form is then sent to both the IRS and workers.
Laws to Know
The Internal Revenue Service (IRS) and the Department of Labor (DOL) regulate certain aspects of payroll processing. If you’re a small business that wants to try and do payroll processing manually, you will have to keep detailed records of hours worked; wages paid, worker classifications, and more. You’ll also need to constantly ensure your calculations are correct and remember to file the necessary taxes and paperwork with the appropriate government authorities on time. When it comes to payroll, just a few of the federal laws you have to comply with include:
The Fair Labor Standards Act (FLSA)
The FLSA entitles all non-exempt workers to the federal minimum wage of no less than $7.25 per hour (as of July 24, 2009) and an overtime pay of no less than one and a one-half times the regular rate of pay after 40 hours of work, which is why you must use an accurate means of tracking time and attendance so that you can apply overtime wages as the law requires.
The FLSA also requires that you keep specific data for all non-exempt workers collected in their payroll records. Every week that includes:
- hours worked each day
- total hours worked during the week
- the basis that employee wages were paid
- hourly pay rate and total overtime pay
- the date of payment
- total period covered
- total wages paid in that period
These records must be stored for three years minimum and additional payroll information such as requests for leave. In addition, the documents on which payroll calculations are based upon – such as time cards – must be kept for a minimum of two years.
Federal Unemployment Tax (FUTA)
Employees usually contribute to the federal and state unemployment programs that compensate workers who have lost their jobs. FUTA is not a payroll dedication because it only applies to employers. To comply, small business owners must pay 6% in taxes of the first $7,000 they pay an employee each year.
Federal Insurance Contributions Act (FICA)
The FICA requires a portion of each employee’s gross earnings to be paid towards Medicare and Social Security Benefits. Therefore, you will have to deduct 6.2% for social security tax and 1.45% for Medicare tax from your employee’s payroll each pay period. As the employer, you are also responsible for matching those deductions, bringing the total FICA tax per employee up to 15.3%.
Understanding Payroll Deductions
Payroll deductions are taxes, benefit payments, or wage garnishments that an employer must withhold from the employee earnings. When you’re doing payroll manually, you will be in charge of keeping track of deductions for all employees for whom you plan to issue a W-2 form, though not for any contractors or freelancers. The deductions include:
- Mandatory Payroll Deductions. These deductions include any federal, state, and local income taxes, along with FICA taxes.
- Voluntary Payroll Deductions. These are all benefit-related deductions, such as retirement plan contributions or health plan payments made through the company.
- Pre-tax deductions. These deductions are removed from the wages before taxes can be calculated. Most retirement plans – including a 401(k) are pre-tax – fall under this type of deduction classification, which means that contributions made to a 401(k) should not be subject to income tax at the time they’re made. Often pre-tax deductions are also voluntary payroll deductions.
- Post-tax deductions. Post-tax deductions do not change an employee’s total taxable income and include items like life insurance, charitable contributions, and select retirement plans.
Sometimes you must also withhold deductions for court-ordered garnishments., which may include shield support or alimony.
The Benefits of Bundling
Outsourcing payroll preparations may make sense if your internal costs for taking care of these tasks have become a burden. Canal HR has a team of experts and industry professionals, and outsourcing payroll can allow you to focus on your business’s day-to-day operations. Canal HR takes care of everything from classifying your employees to filing forms to creating policies – and of course, making sure all employees get paid on time.
As always, it’s always more cost-effective to bundle services together, and Canal HR offers many other ways for your small business to save time and money. Canal HR even offers bundling for those interested in combining payroll with health insurance payments – another essential service that can be costly and timely to do without partnering with a PEO.
With bundling, we can create a personalized package that fits your unique payroll and health insurance needs. Bundling not only saves you money on the individual services, it can also make your HR more structured. Bundling causes fewer problems for you because your services will be standardized as well as more efficient. This means less stress and more time to work on your business.
What to Know about Health Insurance Payments
A group health insurance plan provides employees with health coverage through their employer, who pays a portion of the premium. Because group health insurance plans provide employees with equal major medical coverage through just one policy, the cost of these group plans is usually lower than an individual health insurance policy. Usually, employees have the option to pay for this benefit through payroll deductions.
While business owners are not required to offer it, health insurance is essential for employers for several reasons. Not only does it help ensure that workers stay healthy, but it’s also a massive draw for possible employees and a significant benefit to keeping and retaining talent. In fact, better health, dental, and vision insurance ranked number one in a survey ranking the most critical benefits to job seekers. If you have a small business, a group health insurance plan can help you and your employees stay healthy and pay less.
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Major Medical Health Insurance Options
Major medical health insurance generally covers severe illnesses and injuries. There are three major types of group health insurances to consider for your business. These may or may not contain prescription drug coverage, life, and dental, depending on the type of plan you choose.
A Preferred Provider Organization (PPO) is a health plan with contracts with individual service providers like doctors and hospitals. This results in a wide range of care options, making it the least restrictive plan: you can see whom you want when you want, though you save money if you stay within the network, which is considered a considerable pro for PPOs.
PPOs are great if your small business can pay more for a wider variety of options. With a PPO, you don’t need a primary care provider to get a specialist referral, and members may see out-of-network providers while still utilizing their benefits.
The downside of PPO plans is that you usually have a set deductible that must be met before insurance will make payments. Even after that deductible is completed, you’re responsible for a percentage of each visit. With that in mind, yearly health costs can be challenging to plan for.
A Health Maintenance Organization (HMO) comprises several insurance providers and gives members coverage for either a monthly or annual fee. As a group health insurance plan, HMOs are good at minimizing healthcare costs and incentivizing employees to seek out preventative care services. In addition, because there’s no deductible, the premiums are lower, and for any in-network or covered visits, policyholders are only responsible for the co-pay. .
A con of HMO plans is that they are much more restrictive. With an HMO, members must seek care for potential medical issues only through their primary care provider, who may then refer them to specialists. Benefits only apply if the providers are in-network, and services are limited to what the policy deems medically necessary.