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How to Pay Remote Employees in Your Small Business

It's never been easier to work with a remote team. With programs like Slack, Zoom, and Google Drive, you can run a fully operational, productive business with dozens of employees you've never met in person.

But how do you go about paying these remote employees in your small business? Payroll is always a bit tricky, but it's even more complicated when you bring on employees who live and work in a different state. Lucky for you, I'm here to break down the different factors you should consider and share the absolute easiest way to pay remote employees.

Paying Remote Employees vs. Contractor

The way you pay your team members is going to depend on whether they're employees or contractors. A few things to keep in mind:

When paying contractors...

... you won't need to withhold taxes on their behalf. Independent contractors operate as their own businesses, and the only tax-time paperwork you'll need to do for them is a 1099 form.

You can pay your contractor as you would any other service - through Quickbooks, a bank transfer, etc. - so long as you properly track your payments. (I advise against apps like Venmo and Paypal for this reason.) Most of the time, though, an independent contractor will invoice you from their own payment processor. A contractor is a great option if you have a specific task you're looking to outsource.

When paying employees...

... you'll need to withhold taxes on their behalf, and you may be required to offer benefits. Businesses with more than 50 employees can be fined by the IRS if they don't offer health insurance. And even if you have fewer than 50 employees, you might find you want to offer your employees benefits (like paid time off, maternity leave, or retirement savings). There's also more paperwork involved in onboarding an employee, like the W-4, State W-4, and I-9 forms.

Because are so many requirements for onboarding and paying employees versus contractors, many business owners avoid hiring employees. But if you do the right research and create a system for onboarding, bringing on an employee isn't that complicated.

Withholding Taxes When Paying Your Remote Employees

The biggest difference between paying remote and in-office employees? Your remote employees probably live in a different state than you do, meaning they're taxed differently.

For every employee, you'll need to withhold federal taxes. These include federal income tax, Social Security tax, and Medicare tax.

In addition, you'll need to withhold state and local taxes for the state in which your employee lives and works. For each employee, you'll want to register with their state and do your research to determine how much you need to withhold.

Sound complicated?

It kind of is. If you really want to manage payroll entirely on your own, you'll need to do a lot of prep work and research.

Luckily, there are much easier ways to get it done.

The Easiest Way to Pay Remote Employees in Your Small Business

In all honesty, the best way to pay your remote employees is to invest in a program that will do the hard work for you.

Personally, my favorite programs are...

  • Quickbooks Payroll. You already know I use Quickbooks for just about everything, and payroll is no exception. With Quickbooks Payroll, you can track employee hours, submit payroll, and file payroll taxes automatically. And with their awesome 24/7 support team, you can trust that you'll always get your payroll questions answered.

  • Gusto. When it comes to payroll software, it doesn't get much easier than Gusto. With this app, you can send new employees a link and practically let them onboard themselves. I also love how user-friendly this program is on the employee end; they can create their own savings goals to withhold payment for, track their time, and even apply for a Gusto debit card. This program is kind of like the Honeybook of payroll - it does it all!

  • Patriot. Like Gusto, Patriot handles all the dirty work for you. The program can track and manage your payroll throughout the year, and they'll even file your payroll taxes when the time comes. Some advice, though: invest in the full-service plan instead of the basic one, which doesn't include filing support.

  • Square Payroll. If you already use Square for payment processing, you'll find their payroll software just as easy to navigate. Employees can use a digital "timecard" to track their time in the Square app, and Square will automatically take their home state into account when withholding taxes. Plus, with instant deposits, your employees can get paid the same day you submit their payroll.

All that being said, don't be afraid to do your own research! Each program comes with different features, so it's important to find the right program for you.

If you work with an accountant or bookkeeper, ask them for their preferences. Chances are, they have a program they prefer working with and will be happy to help you pay your remote employees.

Ready to welcome a remote employee to your small business?

Growing your team is a major step towards scaling your business. If you're considering bringing on an employee or contractor, download my free Financial Clarity Guide to help you determine if you're ready to hire and how much support you can afford.


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