During the last two quarters we have made payments to a contractor that should have been employee payments. Can this be fixed? We know there will be taxes and penalties.
You can create new net zero paychecks either for the dates of previous pay or currently and treat the previous payments as advances. You will have to gross up from the net of previous payments. Their future checks will be less due to taxes but they received a short time benefit of a higher wage they were not expecting.
Couple of things might make it less "taxing" on you. You may be able to defer the remittance of the "extra" tax liability by various provisions of the CARES act. One part allows you to defer employer SS, another, not part of the act but an executive order allowing you ton skip withholding of employee SS during a certain period of time. By availing yourself of any and all deferral options you may reduce any underpayment penalties