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Taxes and Payroll - How does it affect my business?

By: Jessica Rickard | December 14, 2020

Starting your own business is both exciting and terrifying. Before you get started, there are many things you need to consider:

  • What is your product or service? 
  • Where do you want to be located? 
  • Online or in person? 

One question people often forget to ask themselves is: what entity are you going to use and how does that affect your payroll? 

Our friend Charles Read recently recorded a podcast with our very own “Cash Flow Mike”. The topic of that podcast had to deal with Charles’ long-time involvement with payroll and helping small businesses overcome payroll and tax challenges. 

Charles Read works for GetPayroll and is one of the most knowledgeable people when it comes to payroll. He has written many blogs on the subject – check it out here 

In this blog, we are going to summarize a couple things that Charles has talked about – and you can always read more in his book The Payroll Book, available now on

Let’s Get Started 

Believe it or not, your payroll questions should start before you even open your doors. Choosing which entity you are going to be a part of changes how you need to execute your payroll. 

There are four entities for businesses

  • Corporation
  • Partnership
  • Sole proprietorship
  • Limited liability company (LLC)

Each entity has its own way of dealing with laws, taxes, accounting, and liabilities. Charles Read goes into detail about what each entity is and how it impacts the way you process payroll here.

What you need to know is it is important to determine your entity before you get started so you don’t run into issues when it comes tax time. 

Tax Compliance 

According to Charles Read, tax compliance is one of the biggest issues that small businesses face when it comes to payroll. Which is understandable, considering 70% of small businesses misclassify their employees and wind up having to pay thousands of dollars in penalties and interest. 

In his blog about Payroll Tax Compliance, Charles Read explains that there are many moving parts to it. You have to calculate the appropriate taxes, deposit those taxes, and create and file a bunch of reports. 

Oh and you also have to deal with mistakes that the agencies may make. As a small business owner, that can be pretty overwhelming. Charles talks about what to do if you see a mistake make by an agency in his blog mentioned above. 

Classifying Employees 

Like I mentioned above, a high percentage of employers misclassify their employees – and that has an affect on your taxes and your compliance. According to, there are three major categories of employees

  • Full-time
  • Part-time
  • Temporary employees

Each category comes with their own rules and regulations regarding pay, benefits, and FLSA compliance. Check out their blog post about classifying employees here. 

I hope some of these resources helped you understand how to determine your entity, tax compliance, and how to classify your employees – because let’s be honest – taxes are confusing. 

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Jessica Rickard

Marketing Specialist