People who are interested in starting or managing their own construction business may quickly become overwhelmed by the tremendous number of responsibilities that come with managing payroll, insurance, and other benefits for their employees. By all accounts, it is a serious undertaking that requires significant time and attention, but there are resources to help fledgling business owners understand the basics of payroll taxes.
Employers in California are responsible for paying two types of payroll taxes for each employee. The first is unemployment insurance tax, which goes towards helping employees should they become unemployed or unable to work in the future. The second tax is called an employment training tax, the proceeds of which go towards labor initiatives and training new construction workers in developing fields, such as "green" development. In addition, employers are required to withhold amounts from their employees' paychecks for personal income tax and state disability insurance.
Every time a person hires a new employee or does business with an independent contractor, he or she is required to register these transactions with the California Employment Development Department. Of course, how an employer structures its business, hires its employees and registers its business, has an impact on how much its tax burden will be. When determining the preliminary steps of business formation, people should consider their objectives, which are most often to hire and retain good, dependable employees without subjecting themselves to substantial tax liability and overhead.
Even for small companies, the penalties for noncompliance or payroll and registration errors are significant, and for a business start-up these unexpected fines can be backbreaking. It's important for small businesses to handle these matters efficiently and correctly, so consulting with an experienced construction business attorney may be a good idea.
Source: California Employment Development Department Payroll Taxes, accessed Dec. 20, 2014