Employer Responsibilities

Whether you outsource your payroll processing to a third party or process payroll internally, you are responsible for knowing and properly administering all of the applicable rules and requirements. This can be a daunting task. Use of the following eight-step approach will assist you in successfully discharging your payroll tax responsibilities.

1. Establish employer liability for payroll taxes. Once you determine that you are an employer, you need to register with the various taxing authorities to withhold taxes and establish filing requirements. In Wisconsin, you need to register with the Internal Revenue Service (IRS) for Federal, FICA (Social Security), and Medicare withholding as well as Federal unemployment (FUTA) taxes. The Wisconsin Department of Revenue administers the Wisconsin withholding tax, and the Wisconsin Department of Workforce Development (DWD) the state unemployment (SUTA) tax.
2. Determine worker classification. A worker may be classified as an employee or an independent contractor. While a business is liable for employment taxes on payments to employees, it is not liable for payroll taxes on payments to an independent contractor. Unfortunately, the decision on classification is not at the employer's discretion. Each situation needs to be evaluated based on its own facts and circumstances using either the IRS' 20-factor test, or the DWS's 10-factor test. If the relationship had the characteristics of an employer/employee relationship, the individual is an employee.
3. Determine covered employment. Employee service is subject to coverage under one or more payroll tax statutes. While most employment duties and activities are covered employment, some classes of employee service are fully exempt from coverage under one or more of the payroll tax statutes, and others are partially exempt. For example, if a parent employs a child under the age of 18, the child's wages are not subject to FICA, Medicare, FUTA, or SUTA taxes. Federal and State withholding taxes are still required.
4. Determine taxable compensation. The amount of payroll taxes an employer should withhold and/or pay is calculated by multiplying the appropriate payroll tax rate by the amount of taxable compensation. Each taxing entity has it's own definition of the taxable wage base.
5. Withhold appropriate Federal and State taxes. To determine the amount to be withheld, obtain a Federal form W-4 and State form WT-4 from your employees each year.
6. Deposit Employee and Employer Payroll Taxes. Employers accumulate four kinds of Federal payroll taxes and two kinds of Wisconsin payroll taxes. Federal and Wisconsin withholding taxes, FICA and Medicare taxes withheld, the employer's share of FICA and Medicare taxes, and Federal and Wisconsin Unemployment taxes. Make sure you know the payment frequency for each of these taxes; late payment penalties can be significant.
7. File quarterly payroll returns. Federal forms 941 and Wisconsin WT-6 and UC-101 are the most commonly required forms for Wisconsin employers.
8. File annual payroll returns. Annually, file W-2 forms for your employees, Form 940 to report your FUTA tax, and WT-7 to reconcile your Wisconsin withholding and tax payments.

In addition to the tax- related responsibilities, you also need to be aware of the responsibilities imposed by the Immigration Reform and Control Act of 1986 (IRCA). This law prohibits employers from knowingly hiring (or having in their employ) illegal aliens.

Under the IRCA, no employer can lawfully hire anyone without checking the person's identity and authorization for employment. Generally, this is done using Form I-9 (Employment Eligibility Verification). In addition, the U.S. Immigration and Customs (ICE) has established an initiative called the ICE Mutual Agreement between the Government and Employers (IMAGE). This initiative defines best practices, requires and provides training, requires I-9 audits, and provides access to an Internet-based employment eligibility database that uses both Social Security Administration and Department of Homeland Security Data. For more information on this initiative, visit: www.ice.gov/partners/opaimage/index.htm. The penalties for violating IRCA are severe including criminal penalties ranging from $110 to $11,000 per unauthorized employee plus imprisonment of up to six months.

New hire reporting is required to locate individuals delinquent in their child support payments. You must report newly hired employees within 20 days. Failure to do so may result in a $25 for each employee not reported. You may submit your new hire reports through the Internet at https://www.newhire-usa.com/wi/.

The Social Security Administration has a social security number verification service that allows employers to verify employees' names and social security numbers. Doing this up front will assist you in not hiring eligible employees, and prevent notices from the IRS when you file your W-2s at year-end. To access this service, visit www.socialsecurity.gov/employer/ssnv.htm.

While a third-party payroll processor may handle many of the eight steps, the responsibility to hire and properly classify eligible employees is ultimately with the employer. In addition to the fines and penalties associated with hiring an ineligible worker, there is no tax deduction for wages paid to illegal aliens.