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This continues the series of 'from the trenches' perspectives about common problems experienced by business owners.  For previous articles, check the Web site under Newsletters.

PAYING UNDER THE TABLE IS BAD BUSINESS PRACTICE

Marcia Firth, who's been providing bookkeeping and payroll processing services for businesses for thirteen years, sees the pattern over and over again.  Business owners need help, so they hire workers and pay them 'under the table.'

In her work with clients in many kinds of businesses, Marcia sees a big part of her role as educating business owners.  While paying cash for help may seem easier, it really isn't.

Marcia's advice is simple and clear, 'Do not pay someone under the table. First of all, that money cannot be deducted as a business expense; second of all, it is just plain dishonest and not a healthy way to run a business.'

It's no wonder business owners want to 'pay cash' or treat workers as contractors.  Complying with the federal and state payroll requirement is complicated and expensive.  There are tax withholdings, tax forms and deadlines, FICA (Social Security) and unemployment to pay, plus the cost of workers compensation insurance.  The tax authorities are extremely inflexible about deadlines and the penalties for noncompliance are stiff.

If workers truly are contractors, make sure they fill out a W-9 and invoice you for services.  Remember, if the tax authorities disagree with your classification, you'll have a big tax liability.  (See eNews 'Workmen's Comp Trap' for criteria for classifying as contractors or employees.)

Bottom line: If you have workers, working on your premises under your supervision and direction, they are employees and you need to comply with the payroll requirements.  Using a payroll service is highly recommended to assure compliance and timely filing of deposits, reports and returns.

As Marcia puts it, 'If you need an employee, put them on the payroll. Pretending they are contractors can cause problems should you ever be audited.  Payroll taxes cost about 10% of the wages and you also must carry Workers Comp. Insurance.'

We thank Marcia for her contribution to the 'from the trenches' series. Marcia Firth of On-Line Accounting and Office Services, West Boylston, MA can be reached at 508-835-6545 or mlfirth@aol.com.

Jean D. Sifleet
Attorney & CPA


P.S. We welcome contributions to the 'from the trenches' series.  What do you wish you had known before it caused you problems?