Attached is the tax compliance schedule that we've been using. You have to a) pay the Feds & State via direct deposit, then b) file the forms. God help you if you get any of the numbers wrong. Software programs can do a lot of the work for you, but even with QuickBooks you're taking a lot on faith and have to keep up with the updates since the tax schedules change every year.

Payroll and sales taxes are a great deal for the government since it has shifted the burden of collection to the private sector. You're held to a standard of performance that the IRS could never achieve. If you fail to make a calculation correctly, you not only pay the balance but penalties and interest. We figure that with no benefits an employee costs 120% of their salary. (That’s with NO benefits.) If you throw in basic insurance and 401K stuff then you're right about 130%. So, if you make $7 / hour as an employee, your employer is actually paying $9.10 / hour, with any benefits such as health or dental care.

A new hire has to fill out a W4 (Fed), and a 919 which is the worksheet for calculating your deductions on the W4. I've included a copy for your amusement (I challenge you to correctly figure out your deductions). An I-9 (Fed proof of citizenship, please show 2 IDs), and a form for the State of Utah which tracks each job you go to and what you do there.

If an employee works more than 40 hours in a "standard" work week then the state requires that you pay them time-and-a-half overtime. Naturally, for unskilled labor, employers will just hire a part-time person to work the extra hours and restrict employees from working beyond 40 hours / week. I had a guy in the shop tell me he'd gladly work for just straight time - he needed the extra income and was willing to work more hours at his regular rate. Unfortunately that's illegal and if someone got pissed and turned us in we'd end up in jail.

Insurance has similar unintended consequences. Insurance is a perk that is nearly a requirement for getting and keeping good people. It's unbelievably expensive. By statute a spouse can jump onto the other spouse's insurance program so when you get a quote for your employees, their entire family medical history influences the company's premiums. An employer, should they choose to offer insurance, is required by statute to pay 50% of the "basic" premium.

As a result, you'll try to hire: younger, fitter, cleaner-living people. Fat, older, chain smokers are going to have to have compelling skills because they'll cost you a lot more money.

Firing people is equally problematic what with CORBA portable insurance, unemployment insurance and the ever present threat of a lawsuit.

As a result of all this employee outsourcing has become very popular. There are two variations: you contract with an outside firm to hire the employees you want then they "lease" them back to you. The second variation is payroll/HR service firms like PayChex (http://www.paychex.com/index.aspx).

Here is our checklist for monthly reporting to comply with state and federal laws:

1^st of the month

q       Utah Worker’s Comp payment w/coupon

15^th of the month

q       Federal withholding, FICA and Medicare paid online at EFTPS (https://www.eftps.gov/eftps/)  or by FORM 8109-B (via Zions Bank). The form itself isn’t filed until the end of the quarter.

Last day of the Quarter (April 31^st – July 31^st – Oct 31^st – Jan 31^st)

q       Form 941 must be filed

q       Form TC-96Q for Utah Income tax withholding

q       Utah Worker’s Unemployment Fund (http://jobs.utah.gov/newhire/)

q       Form TC-61 Utah Sales Tax

I haven't covered EPA compliance (you're not changing oil on those vehicles are you?) or City, State and Federal business licenses, tax ids, property tax on inventory, etc.

It's remarkable that anyone owns a business at all. You figure a well-run business will net 10% of sales so to earn $100,000 you have to sell $1M worth of stuff!

2/21/08

(Editor’s note: for a comparison, see our interview with The Expatriate, who discusses the costs and compliance of running a business in Mexico.)