Small businesses tend to bear the brunt of the costs of accounting regulations. In July 2015, Karen Harned, the executive director of the National Federation of Independent Business (NFIB) Small Business Legal Center, told Congress that regulatory costs amount to about $12,000 per employee per year, a number she claimed is 30% higher than the cost burden on larger businesses.
Here are some of the most important accounting regulations you need to consider as a small business owner.
1. Payroll Taxes
You are required to withhold payroll taxes from your employees’ paychecks. As a business owner, you are also required to pay half of your employees’ FICA taxes. On top of that, a recent Supreme Court ruling affirmed that severance pay is also considered a taxable FICA wage.
For a simple way to estimate your paycheck withholding, use our free paycheck calculator.
2. Employee Classification
One of the most important accounting regulations to keep in mind is the classification of your workers. In July 2015, the Department of Labor issued an Administrator’s Interpretation indicating that most workers are considered employees and should not be classified as independent contractors.
Employees require a higher degree of compliance and regulation; they have taxes withheld from their paychecks, use W-2s for tax purposes, and most are entitled to employee benefits. The Department of Labor appears to be cracking down on businesses that claim most of their workers as independent contractors, which require less regulation, are not subject to paycheck withholding, typically don’t receive benefits and use 1099s for tax purposes.
Failure to classify your workers properly can lead to steep fines. For help in determining whether your workers are employees or contractors, see our W-2 vs. 1099 Wizard.
3. Affordable Care Act
Under the Affordable Care Act, a business with 50 or more full-time employees must provide health benefits. A worker is considered full-time when he or she works an average of 30 hours per week. Small business owners must track employee hours to report to the government, and the government will assess whether or not adequate healthcare coverage is being provided.
4. Same-Sex Marriage
In June 2015, the Supreme Court ruled that states must recognize lawful same-sex marriages performed in other states. As a result, this impacts accounting regulations related to partner benefits.
Realize, too, that the ability of same-sex couples to amend past returns to reflect marital status and claim tax refunds also applies to businesses. A small business can claim a refund for certain taxes paid based on the filing status of a worker whose same-sex marriage is now recognized.
5. Credit Card Fraud
The recent move by payment processors and credit card issuers to implement EMV chips in cards is placing an increased responsibility to prevent fraud on business owners. If you don’t upgrade your equipment to read EMV chips, you might see greater liability for credit card fraud.
For a guide on replacing your old system with EMV, see our complete guide to EMV migration.
6. State Regulations
Don’t forget about important state regulations. Check with your state to confirm which new state regulations impact your business.
Even though the federal minimum wage hasn’t increased, many states and cities have passed laws increasing minimum wage, and that might affect your business.
Another regulatory trend affecting some states is the move toward paid sick leave. Your business might be required to provide paid benefits even to part-time workers, depending on the state in which your business operates.
Also, an increasing number of states now require employers to file worker paperwork (Form W-2) earlier to match with federal requirements.
Several U.S. cities, counties and states are also moving to require employers to remove the checkbox related to criminal offenses. You might not be able to ask a potential employee about his or her criminal background on an application moving forward. New harassment and discrimination regulations are also being passed in some states.
Pay attention to the accounting regulations in your state so you understand what can impact your business on a more local level.
What to Watch in 2016
Laws are constantly changing, and there are a few accounting regulations to consider for 2016. Four items to watch in the coming year include:
- Overtime regulation: The Department of Labor is expected to release a final ruling on raising the salary threshold for white-collar workers from $455 per week to around $970 in spring 2016.
- Retirement plans: In summer 2016, expect to see regulations related to the way businesses select retirement plans and provide financial advisors.
- Workers’ compensation: Some expect to see debate over how much the federal government will need to be involved in regulating this aspect of business as states pull back.
- Online sales tax: For years there has been an ongoing debate about who pays sales tax when making online purchases. Federal rules limit the way sales tax is collected on purchases, and state regulations vary. However, there might be a more unified approach coming.
There are hundreds of accounting regulations to consider, and it’s important that your business stay on top of these regulations to avoid costly fines and other penalties. While accounting software can help manage some of these issues, it’s also a good idea to consult an accountant to make sure your business is on the right side of the law.
For more accounting tips, see our accounting checklist to learn the daily, weekly, monthly and yearly accounting tasks you should be on top of.