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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.

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Posted on 2010-04-19 22:36:15

 
 
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© 2010, All Rights Reserved Alison T. Jacks / Family Child Care Taxes

Alison T. Jacks is an Enrolled Agent specializing in tax preparation and payroll services for California family child care providers. A graduate of the University of California, Berkeley, she is dedicated to effective client communication and attention to detail. Alison has a diverse clientele, but since 2007, she has been accepting child care provider clients only. The FCC Payroll Service was launched in 2010 to meet the needs of preschool and day care employers.

Alison is located in San Francisco East Bay City of Fremont, but she works with clients living throughout Central, Southern, and Northern California. She is a member of the National Association of Tax Professionals.

Website by Cooksey-Talbott Studio.

Special thanks to Cooksey-Talbott for his photographs of the Fremont Hills.