Payroll Now or Payroll Later? That is the question.

Put simply, payroll taxes are taxes paid on the wages and salaries of employees. These taxes are used to finance social insurance programs, such as Social Security and Medicare. You will benefit from these funds years later once you retire. The topic of payroll taxes can be confusing for employers (like you!) and employees to navigate.

So let me break it down and pose a scenario for you.

You’re the HR manager at a medium size consulting company and you’re looking for a new account manager. It’s Dec 15, right at the tail end of the 4th quarter. You just so happen to find the perfect candidate and you want them to start right away. But you hesitate, should you hire them now or wait until after the new year?

What would you do? *jeopardy music*

If you answered wait until the new year, then you are thinking strategically about all the payroll tax, administrative fees and human resources needed to hire a new person. You know by waiting until the new year, the company immediately saves money and energy. Let’s focus on the former.

If you were to hire the worker in December, then that person would only have one paycheck in all of Q4. That’s one paycheck that subjects you to all these unnecessary year-end payroll costs and fees that could essentially be avoided if you waited just two more weeks when the new year begins.

Money matters. But more than that, the additional stress and energy it takes to onboard a new hire doesn’t mix well with the happy holidays you were so looking forward to.

If you want greater profits and less no new payroll tax obligations (who doesn’t) then you’d probably wait.

There is one huge exception to everything you just read. And that is, if your company’s profits grew so much that your operational budget can support the hiring costs, then go ahead and sign that new hire in December. Those last-minute, end of year payroll related expenses will cut your taxable income and save you money on your taxes. This is one tax strategy that this CPA supports!

Now, knowing what you know, what would you do?

Hit “Reply’ and let me know!

To more money in our pockets,

Chika