Full-service payroll for all of your team's needs.
Full-service payroll software that makes running payroll a breeze.
With Gusto payroll, everything's handled.
Paying employees and contractors with multiple pay rates and in multiple states? Gusto handles that for you. Want to avoid dealing with payroll tax forms and filings? Gusto takes care of those, too.
Payroll, benefits, and HR work better together.
Whether you want to offer health insurance and retirement plans to your team or need help building an employee handbook, Gusto is here to make those complex tasks easy. And it’s all in one connected platform that's easy to use, with no hidden fees.
Payroll specialists in your corner.
There's no need to become a payroll and HR expert on your own.
With Gusto, instead of a full-time salaried employee, everything is done for us for under $100/month. I dedicate almost zero mental space toward HR tasks.
We really do consider Gusto to be a key business partner. We rely on their expert payroll, tax, and compliance advice from their awesome, helpful support team and Help Center articles.Amneet Bhurji,
With Gusto, even my employees are impressed with how easy their new hire paperwork is!Lara Latshaw,
Full-service payroll FAQs
How do I pay both employees and contractors?
Paying employees and paying independent contractors are pretty similar processes, but there are some key differences you need to know about as an employer.
In general, paying contractors is a lot simpler than paying employees. The thing is, the IRS considers all workers to be employees unless you can prove otherwise. And if you misclassify your workers, you could pay major penalties.
1. Forms you need when hiring employees vs. contractors
2. Paying employees and contractors
Paying workers isn’t as simple as writing a check. Here’s what you need to know about paying each type of worker on your team:
When you pay employees, you typically have to pay a variety of taxes and withhold taxes from your employees’ paychecks. In general:
Both you and your employees pay:
- FICA tax, which helps pay for Social Security and Medicare
You also pay:
- FUTA tax, which helps fund federal unemployment insurance
- SUI tax, which helps fund state unemployment insurance
- Applicable local taxes for employers
Taxes aren’t the only thing that affect your team’s final paycheck—you also need to take into account elective pre-tax withholdings, voluntary and involuntary deductions, and reimbursements.
You generally don’t have to pay payroll taxes or withhold taxes for contractors—they’re responsible for paying their own taxes.
The exception is if they’re subject to backup withholding. If your contractor doesn’t write down a valid TIN on their W-9 form, you’re required to deduct backup withholding.
This makes it pretty simple to pay contractors—you just pay them the agreed-upon amount. However, there are a couple more forms you need to know about when paying contractors:Form 1099-MISC:
- Paid more than $600 in a calendar year OR
- Withheld federal income tax for
3. Filing deadlines and recordkeeping requirements
Keeping records isn’t just a good idea in case you’re sued or audited—it’s also required for certain employment documents. Here’s what you need to know:
The Age Discrimination in Employment Act (ADEA) and Fair Labor Standards Act (FLSA) require you to keep a copy of each pay stub for at least four years. And remember those forms we mentioned earlier? They have their own filing and recordkeeping requirements too:
On the benefits side, you should keep any records related to the Family and Medical Leave Act (FMLA) for three years and everything else (life insurance, COBRA, short-term and long-term disability insurance, retirement, health insurance, etc.) for six years.
Since paying contractors is simpler than paying employees, it should come as no surprise that this list is shorter. But it’s just as important to keep and file these forms on time:
4. Other HR laws to keep in mind
The government has a variety of laws in place to protect workers. This is a non-exhaustive list of important laws to know about.
We’re not going to sugarcoat it… there are a lot of laws you need to follow when you have employees—more than 180, in fact. Some of the most important labor laws include:
- The Fair Labor Standards Act (FLSA), which regulates things like minimum wage, overtime pay, and child labor
- The Family and Medical Leave Act (FMLA), which requires you to provide unpaid, job-protected leave to eligible employees—if you have more than 50 employees
- The Occupational Safety and Health Act (OSHA), which regulates health and safety in the workplace
There aren’t as many rules here—most laws like the FLSA only apply to employees. With contractors, your main duties are to:
- Make sure they’re actually contractors (not employees). Otherwise, you may have to pay severe penalties.
- Ask for/file/keep the appropriate forms — namely Form W-9 and 1099-MISC.
- Keep records of everything, including contracts, invoices, and proofs of payments.
5. How employee benefits work
While your employees would probably appreciate any benefits you can offer, you’re not required to provide most of them. Despite that, many business owners offer benefits even if they’re not required to because they know that it’s a good way to attract quality candidates and keep employees happy.
Here’s what you need to know about the top benefits employees want:
- Health insurance: You don’t have to offer health insurance unless you have 50 or more full-time equivalent (FTE) employees.
- Vacation/PTO: While FMLA requires you to provide unpaid leave to eligible employees if you have 50 or more employees, you’re not required to offer paid vacation or sick time. However, most companies do.
- Retirement plans: Unless you live in a state that requires you to offer a retirement plan, generally you’re not required to offer one. But if you do, make sure you’re following the regulations around how much your company and employees can contribute. The states that require employers to offer retirement savings plans include California, Connecticut, Illinois, Maryland, New Jersey, and Oregon.
While you’re not required to offer benefits to independent contractors, you may be able to if you want. Providing benefits to contractors can be complicated though, so be sure to consult with a lawyer or HR expert.
While hiring employees and contractors can help your company scale, there’s a lot that goes into paying them. And the information we covered is just the starting point—states and cities have their own rules, too. It’s no wonder why small businesses paid nearly $5 billion in penalties in 2018 alone.