It’s no secret that just about everything these days costs more. Payroll is no exception. In crafting your budget for the coming year, be sure to factor in adjustments in payroll costs as needed due to practicalities and law changes.
Adjust Your Payroll Costs in 2022
Here are some areas to look at carefully.
New wages
You may be required to increase employee wages due to minimum wage increases in your state or locality that go into effect on January 1, 2022. While the federal minimum wage has not been adjusted, and is the standard in 7 states, most states have their own higher rate which takes precedence over the lower federal rate. What’s more, the minimum wage rate in 18 states and D.C. may be increased annually due to inflation. Guess what—all these places have increases in 2022. A number of cities have higher rates than the states they’re in. Check with your state and city now to determine the applicable rate for the coming year.
Even if minimum wage increases aren’t an issue for you, if you’re trying to help your staff at least keep pace with inflation or simply reward them for work well done, it’s going to cost you. In the summer, WorldAtWork projected compensation increases for 2022 of about 3.3%. With the hike in the inflation rate in recent months, actual increases could be higher.
Recognize that increasing wages also means higher payroll taxes. Payroll taxes on employers include:
- FICA (explained below).
- FUTA (the federal unemployment tax). Because this tax based on wages capped at up to $7,000 per employee, the cost won’t change for 2022 unless you add employees to your staff.
- State unemployment tax. This tax typically is based on a company’s experience (how many unemployment claims are made against it). The rate may change from year to year. Due to high unemployment during the pandemic, many companies likely face a higher rate for 2022. Check with your state unemployment division if you have not yet received a notice about your 2022 rate.
And there’s also workers compensation, the cost of which reflects your payroll.
New employee benefits plans
To attract and retain employees during this tight labor market, you may want to introduce or increase your plan offerings. Consider:
- To bring employees back to the workplace, you may need to offer a dependent care assistance plan. This can be financed through employee contributions made on a pre-tax basis. Alternatively, the company may pay the cost (capped at $5,000 in 2022 unless Congress continues the $10,500 cap that applied for 2021).
- If you have a qualified retirement plan with employer contributions—as the only plan contributions or contributions that are tied to employee contributions—employee compensation will determine what it costs you for the year.
- If your company doesn’t have a qualified retirement plan, you may have to enroll employees in your state’s Secure Choice Savings Program if your state has one (about a dozen states do) and your company is not exempt. While contributions to the plan are made by the employee, the set up may mean some additional administrative costs.
New Social Security tax wage base
FICA, which is comprised of Social Security and Medicare taxes, is a fixed rate: 7.65% on the employer as well as an equal rate on the employee. However, of FICA, 6.2% is the Social Security portion, and it applies only to taxable compensation up to a wage base that adjusts annually. In 2022, it will be $147,000, which is up from $142,800 in 2021. Companies that have employees earning more than the former wage base will pay an additional amount in 2022.
The 1.45% portion of FICA for Medicare taxes applies to all taxable compensation; there is no wage base cap.
Repaying 50% of deferred Social Security tax from 2020
Some employers opted to defer a portion of their 2020 Social Security tax. Half was required to be paid by the end of 2021; the other half is due by December 31, 2022. Employers should factor this repayment into their deposits for 2022.
Conclusion
Be sure you’ve adjusted your budget for 2022 to account for the added payroll costs you expect to incur. The added costs are due to higher payments to employees, higher payroll taxes, and higher administrative costs related to payroll. Also monitor any law changes on a federal, state, or local level that may increase your administrative or tax costs for payroll.
Image: Depositphotos
This article, "Adjust Your Payroll Costs for 2022" was first published on Small Business Trends
----------------------------------------------------------------
By: Barbara Weltman
Title: Adjust Your Payroll Costs for 2022
Sourced From: smallbiztrends.com/2021/11/adjusting-payroll-costs-2022.html
Published Date: Mon, 29 Nov 2021 15:30:30 +0000
