- Research payroll companies
- Select one at the time you have one or more employees
- Verify agreements with contractors regarding creative control
Use a Payroll Company
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Even if you have a single employee who receives wages from your company, I would recommend using the services of a professional payroll company. They handle all of the calculations regarding withholding of payroll taxes and they can automatically file and deduct the taxes from your checking account. You basically only need to call them on your regular cycle and inform them how much to pay each person and how much sick/vacation was used so they can track that as well.
If you are paying independent contractors and not taking out payroll taxes, you may be able to simply write checks based on their invoices. The IRS will want to see certain things about your relationship to justify that the person is not really an employee trying to save payroll taxes. One test will be how truly independent the person is and how much direction they take from you on a daily basis. Additionally, where they perform their work and how free they are to set their schedule will likely play a factor in this decision of employee vs. independent contractor. They may also inquire how many other people are paying them for their work. If you pay an independent contractor over a certain amount per year (currently $600), you will be required to issue a 1099 statement showing amount paid at year-end.
You should also verify that you have the proper agreements with regard to who would own any creative work they perform. While your company will clearly own the rights to creative work that your employees perform, this is not true with independent contractors. To avoid any problems down the line, make this clear in your contract.
When you pay an employee, you pay the same amount in FICA and Medicare as the employee. If you hire an independent contractor, they will still be responsible to pay these taxes, but your company will not.
We have used Paychex for a few years and I understand ADP is also a market leader. We were once audited as part of a routine check-in that our state does. When the women showed up at our office, I simply handed her a copy of the binder containing all of the reports provided by Paychex. The audit ended up being extremely simple and was over within 15 minutes. She felt very comfortable seeing the reports and I felt glad I had paid someone else to handle the payroll!
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