So, in 2019, I decided to put on my big girl panties and hire actual part-time help in the fall. You know, not paying someone “under the table in cash” but actually run payroll. Our business is small, and our gross revenues are under $50,000, but there’s only so much of me to go around. I’ve also reached a point where I can’t increase that gross revenue unless I have more help to grow and make more product.

Because I’m a control freak and like to understand my business from the ground up, I decided that to start, I’d do the paperwork around officially hiring an employee myself. I wanted to understand what percentage of money was going out in addition to what was going to the employee’s hourly wage, and where it was going as well. And because I only wanted to hire someone for about 10 hours a week it seemed ridiculous to hire a bookkeeper for what amounted to about $550 a month in payroll.

What I quickly learned is there is a reason most businesses outsource their employee bookkeeping. Trying to figure out each and every line item that must be tracked and reported when you hire an employee is one hell of a learning curve. Especially when you consider that I needed to keep track of both federal and state of Washington requirements. Even finding a list of all of the categories and percentages that needed to be included turned out to be an almost insurmountable task. (Note: I DID hire a freelance bookkeeper to come in and double check what I had set up, just to make sure I didn’t miss anything). THIS was the very best overview I found for Washington state, but if you don’t have the right search words, you can NOT find it (I’ve lost the bookmark location and had to find it again several times – I now have a hard copy print out). God bless the person who put this site together. It’s incredibly helpful!

Before we get started, here’s a list of the licensing and report filing I already keep track of annually, without employees.

  • Annual Limited Liability Corporation (LLC) renewal/annual report – State of Washington
  • Annual Business License renewal, to include Nursery Retailer, Egg Handler, Scale (legal for trade scale for selling by weight) – State of Washington
  • Annual water testing for Coliform – because we’re on a well, for the Egg Handler license.
  • Annual Food Processing Plant license for my value-added products – State of Washington
  • Every third year – inorganic compound water testing for Food Processing Plant license, because we’re on a well.
  • FDA Kitchen registration, every 2 years – Food and Drug Administration.
  • County Health Department permit – catering kitchen – for refrigerated products – Walla Walla County Health
  • Food Worker Card – Not required, but seems like a logical “cover my ass” certification given my value-added products. State of Washingon. Expires every 2 years.
  • Schedule F IRS tax filing
  • Schedule C IRS tax filing

For employee reporting on a federal level, you need:

  • An Employer Identification Number (EIN). It’s possible you already have one for other reasons.
  • IRS Electronic Federal Tax Payment System (EFTPS) account, for paying withholding tax electronically.
  • Prior to first payroll you’ll need to complete and report an I-9, Employment Eligibility Verification with the IRS. This is to make sure the employee is legal to work in the United States. The employee fills out the form and provides copies of required documents, and then you do the reporting/lookup.
  • Also prior to first payroll, employee needs to fill out a W-4, Employee’s Withholding Allowance Certificate, so you know how much money to withhold from their paycheck for federal taxes they may owe.
  • IRS Form 941 – Employer’s Quarterly Federal Tax Return – reporting employee earnings, employer and employee paid Social Security and Medicare taxes, and employee paid income taxes, filed quarterly.
  • IRS Form 940 – Employer’s Annual federal Unemployment Tax Return. Pays for administration of the national unemployment insurance program, paid annually.
  • IRS Form W-2. Wage and Tax Statement for each employee for a calendar year. Given to employees annually.
  • IRS Form W-3. Wage and Tax Statements (W-2) transmittal form. Filed directly with federal Social Security office. Paid annually.

Most of us have been on the employee side of an I-9, W4 and W-2, so at least they are familiar.

On the Washington side, you need to set up accounts and keep track of the following:

  • Washington Department of Social and Health Services (this is a state safety net organization that mostly deals with food insecurity, low cost housing assistance, mental health and addiction services etc.) In the case of new employees, they check to see if employee has child support owed – and then shares hiring info with ESD and L&I below.
  • Washington Department of Labor and Industries (L&I). Workers Compensation Insurance AND Paid Sick Leave, if required. The employees job is assigned a specific Class Code based on risk. In my case, because the job was so varied (from produce farm work to egg washing to helping process fruit for jam to labeling soaps), I ended up with 7 codes, most of which were never used. Each one was a different percentage with “working with livestock” the highest risk/%. Reports filed quarterly. A surprisingly helpful agency to work with, with real people on the other end of the phone who know their jobs. They called ME to discuss the farm tasks and work categories, which totally surprised me.
  • Employment Security Department (ESD). Unemployment Insurance and Paid Family and Medical Leave tracking. Reports filed quarterly. Note: Two DIFFERENT reports to TWO DIFFERENT websites, even though both are under the ESD agency.

So, lets assume, being optimistic, that all of the above only takes you 15 minutes per account to create logins and passwords, get set up, be issued account numbers (they ALL use different account numbers – God forbid they all just use your federal EIN or state UBI number) and get squared away. Plus the time to file quarterly and annual reports. So, to hire ONE employee, you’ve just spent approximately 24 x 15 minutes, or 6 hours of your time. At $25/hour (which is conservatively what I value my own time at) that’s $150 of my time spent on that ONE employee, JUST getting accounts set-up and reporting.

Generally, each of these is a separate online account/website, so count on a gazillion logins/passwords. And the software is regularly tinkered with and “updated” meaning you have to relearn or start over on various platforms, very few of which are intuitive or user friendly. And then, for security, you have to reset your password more often than you would like. Many Washington accounts are accessed through Secure Access Washington (SAW), which seems like a good idea until you have to go through the multi step process to add an additional account/agency to your SAW account, or if you mistakenly start with the agency itself (ESD or L&I) and then have to backtrack into SAW.

Just to make it extra fun, I also have a SAW account for Washington State auto Licensing access (DOL), which in my case is separate from my business accounts, so now I have to remember which login/password is for our vehicles and which is for my employees on the same website.

OK, so you’ve put in your time getting registered with a bunch of state and federal employment reporting agencies online. NOW you need to get your bookkeeping set-up to handle payroll and all of the deductions for both you as the employer and paid by your employee. This includes social security, medicare, federal unemployment, state unemployment, employment administration fund (an additional percent paid to ESD in addition to unemployment tax – I’ve been unable to find info on why its a separate payment or where that money goes), paid medical leave premium, workers comp premium, plus any additional benefits you’re offering the employee (like a retirement account or medical insurance). If you’re not hiring this out, its usually an add-on with your bookkeeping software. In my case, $31.50 a month paid to Intuit for this service, run through Quickbooks. Each payroll deduction (employer or employee – in some cases both) must be tracked based on hours worked, so it can be reported quarterly and/or yearly.

As mentioned, I had a bookkeeper come in for an hour and help me make sure this was all running correctly (the 7 categories for Workers Comp definitely threw her – quickbooks isn’t generally set up for that kind of variety). And then it all needs to be double checked at least yearly if not more frequently as percentages change and new deductions are added (paid family and medical leave, for instance, is a fairly recent addition to Washington state). Lets allocate a minimum of 2 hours to get all of this learning curve down and the entries squared away in your software. So another $50.

And then you need to create a time card, make sure its filled out correctly, and then enter all of that data into your payroll bookkeeping at the frequency you’ve agreed to pay your employee. I paid every two weeks. Lets give that 30 minutes per month – so another $12.50 of my time.

So, for a 10 hour a week employee, I’m committing to $725 in time and software JUST to get this off the ground. ($150 to set up accounts, $378 for a year of payroll software, $50 to set up/learn software, plus another $150 to run payroll every two weeks for the year). And that’s NOT including what I’m actually paying to these agencies as an employer (about 13.5% in addition to the employees hourly rate).

Let’s just do that math for fun. 10 hours a week year round at $13.69/hour (2021 WA minimum wage) = $7,118.80/year. $961 in additional employment taxes. Plus $725 to set up and run payroll. So really, this employee costs me $16.93 an hour. Yes, some of this is a one time set-up, not an ongoing expense (though as often as they change websites/software/password requirements, it doesn’t feel that way), so additional employees would cost less.

But let’s just say, when I do it again (I had no employees in 2020 – don’t get me started on getting OFF of the reporting hamster wheel – I paid fines twice for missing reporting deadlines when I had NO EMPLOYEES – in one case because I called to cancel the account but didn’t also file a quarterly report at the same time) I’ll be outsourcing payroll locally. Square (the credit card processor) also has a payroll service for $35 a month. All I can say is bookkeepers are worth their weight in gold!

© 2021 Miles Away Farm, where we’re miles away from putting anyone else on payroll, but are looking forward to having a Whitman College intern this summer!