Daycare Tax Tips

What is my total out-of-pocket expense for wages of $500 per week?

Provider wants to know if she can afford to hire

A family child care provider writes:

> I have a question regarding payroll. I want to hire a gal, but need to know how to go about figuring out if I can actually afford to hire her. She has needs wages of $500 per week. I know that my out-of-pocket expenses will be more than that, because of payroll taxes, etc. Is there a site or formula or calculator somewhere that I can figure out a close estimate to see what my weekly total expense may be, if I hire her?

As the employer, you are responsible the employer's half of social security (6.2% of wages**) and Medicare taxes (1.45% of wages). You must also pay state and federal unemployment insurance (UI) on the first $7,000 of wages for each employee. The California state UI rate for new employers is 3.4% and the federal UI rate is 0.8%. Your state UI rate will change annually. There is also the small California employer training tax, which is 0.1% of the first $7,000 in wages for each employee.

You will have some overhead for a payroll service or software (unless you do all the work yourself). I am currently charging $45/month.

Your highest overhead will probably be workers' compensation insurance where it seems you will be lucky to pay less than $1,000 per year.

Here is Your Total Weekly Payroll Expense:

$500.00 wages
$31.00 employer social security tax**
$ 7.25 employer Medicare tax
$17.00 California unemployment insurance (on up to $7,000 in wages per employee)
$ 0.50 California employer training tax (on up to $7,000 in wages per employee)
$ 4.00 federal unemployment insurance (on up to $7,000 in wages per employee)
$10.38 payroll service (based on $45/month)
$19.23 workers' compensation insurance premium
$589.36 TOTAL

Above $7,000 in wages, your total cost goes down to $567.86 per week.

It looks like the overhead for your employee will be something like 13-18% of total wages.

By the way, just to be sure you are aware of this, you cannot pay your worker a weekly wage, even if she requests it. You must pay her based on an hourly rate at or above the California minimum wage.

**Note: The recently passed HIRE Act lets employers skip their 6.2% contribution to social security for qualifying employees hired after February 3, 2010 and before January 1, 2011. It also allows for a general business credit of up to $1,000 to encourage retention of the new hires.

Posted on 2010-04-20 04:36:15