Question

Faith Battle operates a health food store, and she has been the only employee. Her business is growing, and she is considering hiring some additional staff to help her in the store. Explain to her the various payroll deductions that she will have to account for, including their potential impact on her financial statements, if she hires additional staff.

Short answer

Employers normally hold on to each employee’s remuneration value to make up for income taxes, the employee’s share of Federal Insurance Contributions Act (FICA) taxes, and various items like health insurance. These amounts are listed as payroll expenses and will decrease Battle’s income.

Step-by-step solution

Meaning of payroll deductions

Payroll deductions is the value deducted from the salary of the employee as tax and for different purposes.

Various payroll deductions that Faith Battle will have to account for, including their potential impact on her financial statements

The employer must keep aside amounts to make up for the employer’s share of Federal Insurance Contributions Act (FICA) taxes and state and as well as federal non employment taxes. These amounts are reported as payroll expenses and will lessen Battle’s income. The amount kept aside for both employee and the employee’s part will be listed as current liabilities till they are paid to the right third party.