While the law requires employers to compensate those who work for them, you do have considerable discretion in deciding when and how they will be paid. Depending on the position, the nature of the work, and the industry you’re in, your accountant may recommend offering employees a regular salary, performance-based commissions, or a contractor role. Each approach has benefits and drawbacks, so it’s best to consider these options carefully when setting up your business.

Understanding Your Payroll Options

Regular Salary

A regular annual salary, which is not dependent on the number of hours worked or the employee’s performance, is usually reserved for management or higher-level employees. For business owners, salaries are the easiest to calculate, since the amount owed and tax withholdings will be the same every period.

Hourly Work

Most employees are paid on an hourly basis since it is usually more cost-effective for the business. However, this approach does require more paperwork, since hours paid and employees’ withholding amounts will vary from one pay period to the next. Because calculating hourly pay is so labor-intensive, you may want to have an accountant handle the paperwork.

Commissions

Employees in many sales roles are paid commissions, either instead of, or in addition to, regular wages. While commission-based payment schedules can boost performance and attract top earners, they do require carefully maintained sales records and accurate calculations.

Contract Work

Independent contractors handle their own tax calculations and aren’t eligible for benefits. This makes them a preferred option in many industries. However, the IRS strictly regulates when workers can be classified as contractors, so speak to an accountant before deciding on a compensation structure.

Setting up a business is a complex project, which is why entrepreneurs throughout the Texarkana area turn to the accountants at Lee & Smith, PLLC. With nearly 30 years of experience and a wide-ranging array of services, their team can handle everything from tax preparation to payroll services. Visit their website to see how they can help your business thrive. Call (903) 832-4339 for an appointment.