The Payroll Book

CHAPTER 2Employees and Nonemployees

Do you have employees? Are you sure? Who is an employee and who is not an employee? What are the special categories of employees? This is what we explore in this chapter.

YOU

Are you an employee? That depends. If you work in your business, you may be an employee, but it depends on the type of entity you selected. Go to chapter 1 and look at the type of entity you do business as. That will tell you if you are an employee and need to take a paycheck or not. If you are an employee, your payroll is basically calculated the same as any other employee's. There are a few items relating to benefits that may be different for income tax purposes, but they should not affect your payroll.

FAMILY MEMBERS

If you have family members working in your business, are they employees? The following extracts are from the IRS:

One of the advantages of operating your own business is hiring family members. However, employment tax requirements for family employees may vary from those that apply to other employees. The following information may assist you with pointing out some differences to consider.

Child employed by parents

Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to Social Security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Refer to the “Covered services of a child” section below. Payments ...