Rules that Small Businesses Should Know About Payroll


A partnership is a type of business where one or more individuals own a company. These individuals are directly liable for the company and must pay for costs if the business is unable to turn a profit. These partnerships often need employees in order to carry out various operations. Employees must be compensated enough to motivate them to work well, while not compensating them so much that the partnership is in jeopardy.

Payroll Witholding

Employers must withhold a certain amount of their employees paychecks to be handed over to federal, state and local governments. This withholding covers income tax, social security, Medicare and Medicaid, many of which are services provided by state and federal governments for when the employees retire, according to American Payroll. All members of the partnership must apply to the Internal Revenue Service for an Employer Identification Number. The employer must also set up a Federal deposit account and a payroll checking account.


Businesses are able to pay their employees in many different ways. Employees working for partnerships usually work for an hourly wage, which means that they receive a set amount of dollars for every hour that they work. These hourly wages must be above a certain amount, according to American Payroll. Also, employees must receive the regular pay plus an extra half for when they work more than 40 hours a week. The hourly wage can provide an incentive for employees to work more hours, since the income of the employees is based on how many hours they work. The employers can also pay their employees a salary, which is a set amount of money given to the employee on a quarterly or annual basis.


Some partnerships choose to pay their employees based on how much profit they bring to the company. There are commissions, where the employee receives a certain amount of income for each sale that the employee makes. This type of payment encourages employees to sell more products, which brings more profit both to the employee and the company, according to American Payroll. Similar to this model is revenue share, where the employee earns a percentage of the revenue that the company earns overall. There are also bonuses that employees receive for performance and various other factors.


Some partnerships choose to outsource their payroll. Highly trained accountants, bookkeepers or third-party businesses are willing to perform payroll functions so that the partners can focus on what they are specialized in, according to AI CPA. Payroll is sometimes handled in-house, especially for partnerships with 20 or more employees, since the in-house processing of employee payroll is cheaper.

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