Avoid Payroll Tax Pitfalls

Discover a smart small-business payroll app and a few tips to save you time and money!

Every small-business owner dreads getting that letter in the mail from the government. No, not the one containing the jury summons, the other one—the one from the IRS. That happened to spa owner Devon Kirk before she took on the role of marketing manager for Simon, a smartphone-capable payroll app designed specifically for the requirements of small businesses.

Kirk has been a licensed esthetician for 30 years and in four different states as well as the owner of her own day spa and blow-dry bar for seven years. She originally set up her payroll with a large, well-known payroll service that was charging her about $150 per month even though she had just six employees. “It was really biting into my profit margin,” she says. So Kirk switched to less expensive, do-it-yourself software to manage her payroll. That’s when things went from bad to worse.

“You’re paying for EEOC (U.S. Equal Opportunity Commission) compliance; you’re paying for Affordable Care compliance; you’re paying for all kinds of compliance issues you don’t need.”

-Charles Read

“You are completely on your own when you do payroll with them,” Kirk says. “And I ended up making some major mistakes and getting fined heavily by the IRS—to the point where somebody actually came into my place of business during my workday and flashed their ID and served me papers!”

Kirk’s experiences as a small-business owner provide the perfect viewpoint to judge the benefits of Simon Payroll App. “When I joined Simon, I found out our Simon Payroll App, which we launched in March, is absolutely the best option for salon, spa and boutique businesses. … Being intimately familiar with the salon industry for so long, I can say that if I had had Simon I would have never gotten fined by the IRS, and I would have been counseled by experts who know what they were talking about.” She adds, “I would have saved a lot of money.”

Charles Read, president and CEO of Simon, is not only a CPA but a U.S. tax court practitioner. “There’s only about 200 of us total in the country,” says Read. “That allows me, as a nonattorney, to practice in a U.S. tax court.” As an expert in payroll tax compliance, Read has taken his decades of experience and incorporated them into the Simon Payroll App to help the company’s clients avoid payroll tax headaches. “With Simon we have the software in place, we have the procedures and … when the IRS screws up, we know how to fix it,” Read says. According to him, “Forty percent of all penalties the IRS issues are abated every year, mostly by people like me who know what they are doing.”

In 2005, Read launched GetPayroll, a software program to help businesses with up to 50 employees manage their payroll and tax obligations. Read learned from his experience with GetPayroll that there are millions of small businesses that don’t need all the features required by larger companies. So he distilled the essentials of GetPayroll down to just those needed by companies with 10 or fewer employees. The result is Simon Payroll App, a simple payroll solution that costs just $20 per payroll for up to five employees, and $30 for up to 10.

With Simon, busy beauty store and salon owners don’t need to be concerned if they have to make a lot of different payments on payday. The app provides alerts, including a countdown ticker and text messages, when it’s time to run your payroll. It takes just a few taps on your smartphone and you’re done. Funds are transferred from your bank to Simon to cover the payroll, including taxes. From there, Simon pays the appropriate amounts by direct deposit to each employee, with the taxes paid automatically to the various agencies for you.

Simon works so well because it is set up specifically to service the small business with a small payroll to match. There are large services that allow you to run a 1,000-person payroll in 15 states. “But you pay for that,” Read says, “even if you have only four or five people on the payroll.” Read explains that with most payroll services, “You’re paying for EEOC (U.S. Equal Opportunity Commission) compliance; you’re paying for Affordable Care compliance; you’re paying for all kinds of compliance issues you don’t need.”

“At Simon, we guarantee that our clients won’t have IRS tax problems. If they have problems, we will solve them."

-Charles Read

A 2017 survey by the National Small Business Association revealed that the typical small-business employer spends a significant amount of time preparing payroll and dealing with the associated tax regulations. Almost 85 percent of the respondents in the survey had fewer than 20 employees. One-third of them reported spending more than six hours a month preparing payroll. This amounts to more than 72 hours per year, or nearly two full work weeks—time that could be spent more productively growing the business.

According to Read, about 55 percent of businesses in the U.S. outsource their payroll. This follows a long-term trend for companies to outsource a wide range of support services.

The benefits of outsourcing payroll are saving time and reducing the potential for costly errors. Yet, Simon Payroll App is designed to excel in both these areas. “At Simon,” Read says, “we guarantee that our clients won’t have IRS tax problems. If they have problems, we will solve them. Should we make a mistake, if we cannot abate any penalty or interest, we will pay it.”

Kirk emphasizes the efficiency of going paperless with Simon on a smartphone. “That would have been great for me,” she says, “because I used to do all my payroll and paperwork on one of my facial beds in between clients. If I had had it right on my smartphone or on my iPad, I could have just done it right then and there. Now it’s so easy!”

Simon is a simple, 100-percent paperless smartphone app with all the features a small business needs to manage payroll.

  • Pricing: For businesses with one to five employees, it’s $20 total for each time you run payroll. For 6 to 10 employees, the cost is $30 per payroll. There are no contracts to sign or setup fees. You are only charged when you actually run your payroll. Payment can be applied through direct deposit or debit card.

Are you properly classifying workers as employees or independent contractors?

Outsourcing certain jobs to contractors can save you time and money. It’s easier to hire and replace contractors, and you don’t need to withhold taxes from the money you pay them. But employers need to be careful. Charles Read, president and CEO of Simon, says, “Employee classification is something the IRS is very hot on at the moment.”

Jing Wang, a CPA and business consultant based in Los Angeles, says, “If you have any doubts, it’s best to include all your workers as employees, and not contractors.”

She explains, “To be correctly classified as a contractor, that person must have other customers, not just you. They are typically skilled workers with a license.” Contractors are not restricted like employees. Wang says, “Contractors can make their own decisions about how and when they deliver their services. You cannot tell them exactly when and how things are to be done.

“You need to get a W-9 from your contractor first,” she recommends. “And you have to ask for invoices. Everything must be in place, and then you can offer work that is project based. Otherwise they are employees.”

At the end of the year, businesses send contractors copies of the 1099 tax form rather than the W-2 forms that employees receive. Read warns that in spite of the advantages of using contractors, employers can still be on the hook for taxes. He says, “A lot of 1099-ers don’t file their taxes. And if they really are employees, then the IRS will come back and make you pay all the taxes you should have withheld. And then you have to go get it from the 1099-er that you didn’t collect it from.”