What does this mean?
Both and federal and state laws require employers to get and maintain certain insurance for their employees. These 3 insurance requirements are most common:
- State disability insurance
- Workers Compensation
- Unemployment insurance
Does this apply to me?
If you have an employee, then most likely yes.
Why is making this mistake going to hurt my business?
Failure to comply with these requirements may result in having to pay interest and catch up on missed insurance payments.
How much money will this mistake cost me?
The penalties and fines may differ depending on the state, they may range from hundreds of dollars to several thousand.
You could avoid this by:
Making sure you check all the employment and unemployment taxes to see if they are applicable to you. Also, make sure you have a good grasp of the distinction between contractors and employees and that you’re not misclassifying contractors - this may cause you to unintentionally forego making payments otherwise required.
Will owned a company with his partner, Chet. Will was the CEO and Chet handled personnel, among other things. Chet was therefore responsible for the company’s employees, including ensuring they got the proper benefits paid the right taxes, and that the company withheld the proper taxes.
Unfortunately, Chet was unreliable. He forgot to withhold and pay the proper employment taxes because he thought Will was taking care of that. The IRS figured this out, and the company was forced to pay back taxes, interest, and penalties. Will’s company was still in its early stages and couldn’t afford the sudden tax hit, so they were forced to close the business and find other work.
These problems could have been avoided if WIll had known the tax obligations required for employees.