Part 4: 10 Items You Won’t Easily Learn About When You Register a Business in NM
In Part 4 of our 4-part series, REDW covers the last 2 of the 10 items to be aware of when registering a business in New Mexico:
- Difference between an employee, an independent contractor, and a statutory employee.
- Payroll reporting is a bear!
One of the most difficult and complicated facets of owning a business is addressing employee issues. Aside from the entire Human Resources function, payroll reporting can be complex and costly. Before ever writing that first employee’s payroll check, business owners should confirm and identify that the person working for them is considered an “employee” under federal statutory guidelines.
Many businesses run into problems when they agree to pay someone to provide services over an extended period of time, but because of a variety of reasons the relationship is considered to be an independent contractor position. No formal agreement is drawn up to memorialize the contractual relationship, and the person performing the services chooses not to report the income for income tax purposes or gross receipts tax purposes. This type of situation can trigger a payroll audit, either by the IRS, the New Mexico Taxation & Revenue Department, or the New Mexico Department of Workforce Solutions. Noncompliance identified by one of these agencies will be communicated to the others, resulting in a revolving door of auditors poking through your business information.
Proper payroll tax reporting is absolutely vital for a multitude of reasons, including:
- Improper or incorrect reporting can generate severe penalties.
- An employer has a fiduciary responsibility to withhold and remit payroll taxes on their employees’ behalf.
If a business offers benefits to its employees, the benefits, too, must be separately evaluated to determine how the benefit impacts an employee’s withholding. Stringent rules and guidelines must also be followed to properly report employee benefits.
Key points to remember:
- Locate reliable resources to answer payroll reporting questions.
- Take time to learn and understand the laws relating to payroll and benefits.
- Tax penalties can cause significant financial hardship.