What do the codes in Box 12 on my W-2 mean?

This article focuses on what the codes in Box 12 on Form W-2 mean. Reading your Form W-2 can be tricky and knowing what these Box 12 codes on the W-2 mean is very important.

This article is going to walk you through all possible codes on Box 12 on your W-2.

How to Complete Form W-2

If you are looking for information on how to read your W-2, this guide takes you through all the boxes on your W-2 form.

Now, back to what the codes on Box 12 on your W-2 mean. Here we go….

How to interpret the codes on Box 12 of your W-2

Note: Upper-case (capital) letters in Box 12 have different implications.

A and B: Uncollected social security and Medicare tax on tips. This amount represents the social security and Medicare tax on the tips you reported to your employer. There will be an amount here if your employer didn’t withhold social security or Medicare taxes on these tips. If you have one of these codes on your W-2, you cannot file a Form 1040EZ.

C: Taxable cost of group-term life insurance. You received group-term life insurance valued at more than $50,000 from your employer. The amount is also reported in Boxes 1, 3 and 5 of your W-2 and appears in Box 12 for your information only.

D, E, F, G, S, and H: These codes give you information about contributions to your retirement plan at work, and they are for your information only:

D: 401(k) plan – Elective deferrals to a section 401(k) cash or deferred arrangement. Also includes deferrals under a SIMPLE retirement account that is part of a section 401(k) arrangement.

E: 403(b) plan – Elective deferrals under a section 403(b) salary reduction agreement

F: 408(k)(6) plan – Elective deferrals under a section 408(k)(6) salary reduction SEP

G: 457(b) plan – Elective deferrals and employer contributions (including nonelective deferrals) to a section 457(b) deferred compensation plan

S: 408(p) salary reduction SIMPLE retirement account

H: 501(c)(18)(D) plan – Elective deferrals to a section 501(c)(18)(D) tax-exempt organization plan. See “Adjusted Gross Income” in the Form 1040 instructions for how to deduct.

J: Nontaxable sick pay (information only, not included in boxes 1, 3, or 5)

K: 20% excise tax on excess golden parachute payments. See “Other Taxes” in the Form 1040 instructions. Workers with this code on their W-2 you cannot file a Form 1040EZ.

L: Substantiated employee business expense reimbursements (nontaxable). This amount is for expenses that the employer reimbursed the employee for business expenses that were paid out of the employee’s own pocket and the amount reimbursed is greater than the amount actually spent. This amount isn’t included in income in Box 1, so the employee cannot deduct any of the expenses related to this reimbursement.

M and N: Uncollected social security and Medicare tax on group-term life insurance. If the employer pays for life insurance for employee, employee has to pay tax on premiums for the life insurance coverage that is in excess of $50,000. The amount of the excess premiums are included in Box 1 of Form W-2, so employee pays income tax on them when filing tax return.

P: Excludable moving expense reimbursements paid directly to employee (not included in boxes 1, 3, or 5). An employee with this code on form W -2 cannot file a Form 1040EZ.

Q: Nontaxable combat pay. See the instructions for Form 1040 or Form 1040A for details on reporting this amount.

R: Employer contributions to your Archer MSA. Report on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts.

T: Adoption benefits (not included in box 1). Complete Form 8839, Qualified Adoption Expenses, to compute any taxable and nontaxable amounts.

V: Income from exercise of non-statutory stock option(s) (included in boxes 1, 3 (up to social security wage base), and 5). See Pub. 525, Taxable and Nontaxable Income, for reporting requirements.

W: Employer contributions (including amounts the employee elected to contribute using a section 125 (cafeteria) plan) to your health savings account. Report on Form 8889, Health Savings Accounts (HSAs).

Y: Deferrals under section 409(A) on an nonqualified deferred compensation plan.

Z: Income under a nonqualified deferred compensation plan that fails to satisfy section 409A. This amount is also included in box 1. It is subject to an additional 20% tax plus interest. See “Other Taxes” in the Form 1040 instructions.

AA: Designated Roth contributions under a section 401(k) plan.

BB: Designated Roth contributions under a section 403(b) plan.

DD: Cost of employer sponsored health coverage. The amount reported with Code DD is not taxable.

EE: Designated Roth contributions under governmental section 457(b) plan. This amount does not apply to contributions under a tax-exempt organization section 457(b) plan.

Box 13. If the “Retirement plan” box is checked, special limits may apply to the amount of traditional IRA contributions you may deduct. See Pub. 590-A, Contributions to Individual Retirement Arrangements (IRAs).

Box 14. Employers may use this box to report information such as state disability insurance taxes withheld, union dues, uniform payments, health insurance premiums deducted, nontaxable income, educational assistance payments, or a member of the clergy’s parsonage allowance and utilities. Railroad employers use this box to report railroad retirement (RRTA) compensation, Tier 1 tax, Tier 2 tax, Medicare tax and Additional Medicare Tax. Include tips reported by the employee to the employer in railroad retirement (RRTA) compensation.

Note: Keep Copy C of Form W-2 for at least 3 years after the due date for filing your income tax return. However, to help protect your social security benefits, keep Copy C until you begin receiving social security benefits, just in case there is a question about your work record and/or earnings in a particular year.

How to read your W-2 Form

This is a guide on how to read your W-2 form. Preparing W-2 forms for filing with the Social Security Administration can be tricky. This article will help:

1. Employer seeking to fill out the forms correctly.
2. Employees trying to understand the numbers reported on their W-2. It will also help employees understand how to fill their income tax forms (1040 tax returns).

What do the codes in Box 12 on my W-2 mean?

This is a comprehensive guide to all the codes in Box 12 of Form W-2. Check it out.

In this guide on how to read your W-2 form, what information goes to which box?

To follow this guide carefully, please download a copy of Form W-2 and either print it or have it where you can easily refer to it. Then follow along:

Box 1 – Wages – also referred to as income. It also includes reported tips, bonuses and other taxable compensation. Taxable fringe benefits are also included here, but pre-tax benefits such as 401(k) and health insurance plans are excluded. The amount in this box goes to line 1 of Form 1040 tax return.

Box 2 – Federal Income Tax withheld from your paychecks throughout the year. This amount is reported on line 17 of form 1040 tax return from 2019 and later.

Box 3 – Total wages subject to Social Security Tax. Exclude all reported tips since they go to box 7.

Box 4 – Amount of Social Security taxes withheld from your paychecks.

Box 5 – Amount of wages subject to Medicare tax. There is no maximum wage base subject to Medicare. 

Box 6 – Amount of Medicare taxes withheld from your paychecks. This amount includes the 1.45% Medicare Tax withheld on all Medicare wages and tips shown in box 5, as well as the 0.9% additional Medicare tax on any of those Medicare wages and tips above $200,000. You may be required to report this amount on Form 8959, Additional Medicare Tax. See the Form 1040 instructions to determine if you are required to complete Form 8959.

Box 7 – Amount of tip income you’ve reported to your employer. It will be empty if you didn’t report any tips. Box 7 and Box 3 should add up to the amount that appears in Box 1 if you don’t have any pre-tax benefits, or it might be equal to the amount in Box 5 if you do receive pre-tax benefits. The total of Boxes 7 and Box 3 should not exceed the Social Security wage base. The amount from Box 7 is already included in Box 1.

Box 8 – Amount of tip allocated to you by your your employer. This amount is not included in the wages that are reported in Boxes 1, 3, 5, or 7.

You must file Form 4137, Social Security and Medicare Tax on Unreported Tip Income, with your income tax return to report at least the allocated tip amount unless you can prove that you received a smaller amount. If you have records that show the actual amount of tips you received, report that amount even if it is more or less than the allocated tips.

On Form 4137 you will calculate the social security and Medicare tax owed on the allocated tips shown on your Form(s) W-2 that you must report as income and on other tips you did not report to your employer. By filing Form 4137, your social security tips will be credited to your social security record (used to figure your benefits).

Box 9 – Was used to report the amount of advance earned income credit to low income earners. This was phased out in 2011, and therefore should be left blank.

Box 10 – This amount includes the total dependent care benefits that your employer paid to you or incurred on your behalf (including amounts from a section 125 (cafeteria) plan). Any amount over $5,000 is also included in box 1. Complete Form 2441, Child and Dependent Care Expenses, to compute any taxable and nontaxable amounts.

Box 11 – This amount is either:

a. A distribution made to you from a non-qualified deferred compensation or nongovernmental section 457(b) plan. Is is also included in Box 1. 

b. A prior year deferral under a non-qualified or section 457(b) plan that became taxable for Social Security and Medicare taxes this year because there is no longer a substantial risk of forfeiture of your right to the deferred amount. It is also included in box 3 and/or 5.

This box should not be used if you had a deferral and a distribution in the same calendar year. If you made a deferral and received a distribution in the same calendar year, and you are or will be age 62 by the end of the calendar year, your employer should file Form SSA-131, Employer Report of Special Wage Payments, with the Social Security Administration and give you a copy.

Box 12 – Is for the different types of deferred compensation and other types of compensation. See section below for all the possible codes for box 12.

Box 13 – Has 3 check boxes as follows:

a. Statutory Employee – If this box checked, you should report your wages on Schedule C of your tax return (Form 1040). Statutory employees are not subject to income tax, but are subject to Social Security and Medicare taxes. Boxes 3 to 6 should not be left blank. 

b. Retirement Plan – If checked, you participated in your employer’s retirement plan during the year. 

c. Third-Party sick pay – This box is checked if you received sick pay from a third party instead of receiving it from your employer. Sick pay is subject to Social Security tax and Medicare even though it is not reported in Box 1.

Box 14 – Is used to report additional tax information such as state and local taxes ( eg SDI Tax), after-tax contributions to a retirement plan, employer-paid tuition assistance, union dues, fair-market value of employer provided housing etc. The names of these items should be descriptive enough. 

Box 15 – Is used for your employer’s state withholding tax identification number.

Box 16 – Is used for your wages, earned in the particular state, that are subject to state withholding tax.

Box 17 – Is used to report the amount of state income taxes withheld from your paychecks.

Box 18 – Is used for your wages, earned in the particular state, that are subject to local or other state income taxes.

Box 19 – Is used to report the amount of local or other state income taxes withheld from your paychecks.

Box 20 – Is used to identify the type of local tax in Box 19. 

Payroll Services for the Beauty Industry Guide

This comprehensive guide to payroll services for the beauty industry is designed to help owners of barbershops, nail studios, hair salons, spas and massage parlors understand the ins-and-outs of payroll requirements.

Additionally, you can also turn to this guide for insights on setting up payroll services for small businesses for the first time, applying for necessary agency account numbers and selecting the right payroll service for your business.

Do I need Payroll for my Barbershop or Salon?

Most beauty business owners aren’t exactly clear on how to answer this question. So, they have traditionally operated their businesses and paid their workers as independent contractors.

But this uncertainty raises a more pragmatic question:

Are beauty industry workers employees or independent contractors?

In most cases, the difference between an independent contractor and an employee is clear. Right?

Unfortunately, the answer may not be so obvious. Dive into this article for an in-depth analysis.

An employee, as defined by law, is someone who typically works for one employer and whose work, hours, conduct and benefits are under the control of that employer.

Contractors, on the other hand, differ significantly.

A contractor is defined as someone who typically offer services to multiple clients and who is in control of when and how they complete the work they’ve been asked to take on. A contractor also provides his own tools to perform his work.

But what about those who work for a hair salon, nail salon, spa or barbershop? 

You might be wondering, do those workers classify as employees or contractors?

And if you are, you aren’t alone. Many employers are starting to question whether or not to invest in payroll services for the beauty industry.  

The issue is one that has created quite a stir in states around the nation. Multiple states along with the IRS are now cracking down on salons, barbershops, and even spas for miss-classifying staff. 

Why?

Beauty parlors do not have a uniformed business structure.

Many follow a business model where the hair stylist or tech actually leases a station inside the salon for a flat cash fee.

Others are based on a cash only structure where stylists are paid purely on commission and are offered no salary or hourly wages.

Still, others choose a commission-salary combination that pays stylists for a percentage of their services as well as an hourly wage. And these payments are mostly made in cash at the end of the day.

But the days of different barbershop commissions and hair salon commission agreements may be over.

But don’t panic. Keep reading to find out why payroll services for the beauty industry can put you in the clear. 

In Temecula, CA, a local nail salon now faces more than $1.2 million in back taxes and fines for missclassifying workers as independent contractors instead of employees.

According to an article published by the Press Enterprise, the California Department of Industrial Relations stated that the salon failed to pay employees for hourly rates and overtime and instead chose to pay them per service.

The department’s reasoning was that the nail salon techs were missclassified. The salon, as the decision suggests, should have been providing payroll services for the beauty industry to their employees. 

The new rule

The fines were assigned to the salon just months after the California Supreme Court released a decision regarding independent contractors throughout the state.

Essentially the new ruling places the burden on any business entity that classifies a worker as an independent contractor to prove the following:

1. The laborer determines how and when the work is completed and is free of any controls or direction the hirer would typically implement in regards to the performance of the work.
2. The worker performs the work outside the typical course of the hiring entity’s business.
3. And finally, the hired worker is engaged in an independently established business or service of the same nature of the work performed.

But when it comes to working in a salon or barbershop, the above conditions don’t alway apply. The decision suggests that payroll services for barbershops and beauty salons will now become a must.

Now, barbers, salon and spa workers must be treated as employees and paid via payroll instead of cash.

Additionally, other burdens are now being placed on the employer.

Many salons that followed the leased-booth structure, or similar business structure, are now tasked with withholding employee taxes and matching the mandatory employer taxes, including social security, Medicare, FUTA, and state unemployment taxes.

Employer and Employee Taxes

Salons, barbershops and spas now have to adjust to being reclassified as employers in the traditional sense. Thus the burden of certain taxes no longer fall solely on the worker but the salon as well.

Employers are tasked with numerous payroll taxes responsibilities including withholding taxes, making the tax payments and filing quarterly and annual taxes as well as W-2 forms.

In fact, taxes are going to be a really important part of any payroll services for the beauty industry. Keep this in mind as you begin to search for a payroll provider.

Here’s a brief overview of taxes that both employees and employers are responsible to pay. This information might be useful to employers outside the beauty industry looking into payroll services for small businesses. 

Taxes Applicable to Employees

1. Federal Income Tax (FIT): Federal Income Taxes are taxes that are taken out of employee earnings by the IRS. Employees typically elect their exemptions when they complete a W-4. Then, based off their tax bracket, a specified percentage is deducted from their check.
2. Social Security: This is the tax levied at the rate of 6.2 percent on employees as a contribution to the social security program. This program pays for retirement, disability and survivorship benefits at old age. Certain individuals also qualify for these benefits at a much younger age depending on the situation, primarily disability.
3. Medicare: This tax funds the federal government’s Medicare program. It provides subsidized health care and hospital insurance benefits to retirees and those who are disabled, whether young or old. The rate is 1.45 percent.
4. State Income Tax (SIT): Similar to FIT, state income taxes are taken out of an employee’s check at a state level.
5. State Disability Insurance (SDI): This particular tax, which gives people covered under it the benefit of wage replacement in the form of disability insurance and paid family leave, is only applicable in certain states such as California.

Taxes Applicable to Employers

1. Social Security: Just like the employee, the employer must match social security contribution at the same rate of 6.2 percent.
2. Medicare: Similarly as above, employers must also contribute to the Medicare program at the same rate of 1.45 percent as the employee.
3. Federal Unemployment Tax (FUTA): This is a tax paid by the employer. Basically put,  FUTA (along with state unemployment programs) funds unemployment payments and provides compensation to those workers who’ve been laid-off.  While the FUTA tax rate is 6 percent, most employers qualify for a tax break of 5.4 percent.
4. State Unemployment Tax (SUTA): Similar to its federal counterpart, SUTA is also paid by the employer at the state level. It offers a type of unemployment insurance to workers who have lost their jobs. Contribution rates differ from state to state. Furthermore, the rates vary depending on how many former employees have claimed unemployment benefits. 

NOTE: Social Security and Medicare taxes are commonly referred to as FICA (Federal Insurance Contributions Act). As the name implies, these taxes were established for the sole purpose of providing a form of insurance to US workers, through Congressional law. These benefits are administered by the federal government.

Other resources for you:

1. How to minimize taxes on your 401(k)
2. A guide on how to read your pay stub
3. Your small business accounting essentials

Should I incorporate or operate as a sole proprietorship?

California beauty salon and parlor owners may now feel like they’re faced with a dilemma.

Salons, barbershops, and spas that have operated using the cash-only models previously discussed will likely have to restructure and align with traditional business models.

Since hair stylists and nail techs can no longer be classified as contractors, many businesses may have to change their mode of operation. And that means that these businesses will have to incorporate payroll as their main mode of paying employees.

Additionally, payroll for massage parlors and spas will also become a must.

But don’t worry! You have some options ahead of you as you decide how best to reorganize your business.

Firstly, if you haven’t already, you’ll want to start by determining if your business will operate as a sole proprietorship or a corporation.

Let’s take a look at each:

Sole Proprietorship

In simplistic terms, a sole proprietorship is a business that is not considered a separate entity from its owner.

Or in other words, the business is not its own legal entity. Instead, the owner assumes responsibility for the business, including its losses and debt.

Additionally, any income or losses incurred throughout the year are listed on the owner’s personal income tax return.

Corporations

A corporation, on the other hand, is considered a separate legal entity.

Corporations are comprised of a group of key decision makers (known as the Board of Directors) that implement the structure and shape of the business.

In addition, corporations enjoy most of the same legal rights as an individual.

So which is better? A sole proprietorship? Or a Corporation?

The right answer will vary based on the size and scope of your business, as well as how comfortable you are taking on personal responsibility for liability.

However, keep in mind:

Losses include any damages you have to pay as the result of a lawsuit.

Conversely, lawsuits against service providers in the beauty industry are rare.

So it makes sense that the flexibility a sole proprietorship offers is attractive, especially if the odds of being on the receiving end of a lawsuit are relatively low.

But there are also benefits to filing as a corporation, the biggest being that no shareholder or partner is personally responsible for the company’s debts.

Yet, there are a few downsides as well.

Some states impose local taxes on these corporations. For example, California taxes corporations at an 8.84 % tax rate. The minimum tax amount is $800.00.

Find out more about state corporation taxes.

So when you’re deciding how to classify your business, it’s best to consult with your CPA or accountant.

A CPA or licensed accountant can help you better understand your options as they relate to your business.

They can even help you select the right classification that best suits your beauty salon, barbershop, parlor or spa.

Apply for an Federal Employer ID and State ID Numbers for your Business

Now, you’ve decided what kind of business model you’ll operate your salon, barbershop, parlor or spa. It’s time to move on to the next step. 

Generally, all businesses need an Employer Identification Number. This number helps identify a business entity.

This is an important number to have when it comes to payroll services for the beauty industry. 

And even if you’re not in the beauty field, knowing this information can help business owners establish payroll services for small businesse

Even if you decide to operate your business as a sole proprietorship, you must apply for a Federal Employer ID Number. This number is commonly referred to as FEIN, or EIN, or simply Employer ID.

Uncertain about where to begin?

Follow these steps:

How to apply for your EIN online

To file for an EIN number online, you must have:

1. A business that is located here in the United States.

2. A valid Taxpayer ID Number, which can be your social security number (SSN), Individual Tax ID number (ITIN), or an Employer ID Number (EIN) if the responsible party is a corporation.

Luckily, the process to file for an EIN is very straightforward and can be completed within 15 minutes. The online application portal is only available during weekdays from 7.00 am to 10.00 pm EST (4.00 am to 7.00 pm PST).

When you are ready to start the application process, this link (Apply Online Now) will connect you to the online application portal. In most cases, EINs are issued immediately.

How to apply for State ID number

Each state has its unique process of applying for the employer identification number. Some states require two separate ID numbers — one to report withholding (income) tax and anonter for unemployment taxes.

Such states will almost always:

1. Have two separate departments – one for the income tax withholding administration and another for unemployment tax and benefits.
2. Require separate tax returns – one to report and reconcile income tax withholding and the second to report and reconcile unemployment contributions (employer tax).

States like California have a more unified system for handling both employee and employer taxes. 

Additionally, California, and a few other states, require only one ID number to serve both purposes. All the tax payments and quarterly tax filings are handled by the same agency and on the same online portal.

But always check with your state for any other specific requirements.

How to Apply for an EDD number (California)

If you’re an employer of one or more individuals in California, this is a step you don’t want to overlook — whether you’re looking into payroll for barbershops and salons or payroll services for small businesses. 

All california employers are required to register for an EDD number.

An EDD number is essentially your identification number with the state’s Employment Development Department (EDD).

This is a critical step when it comes to providing payroll for spas and massage parlors as well as other areas in the industry.  

Why?

Because once you register with the EDD, you will be issued an eight-digit employer payroll tax account number.

Like applying for an EIN, the process to obtain an EDD number is straightforward. However, be aware that a lot more information is required in this process.

This is also a key step for first-time employers looking to set up payroll services for small businesses. 

Before you get started, make sure you have your Driver’s License and Social Security number.

Getting set up 

When ready, go the eServices of the EDD’s website to apply for your number. Firstly, you have to enroll in eServices ( the access to the portal) as an employer by establishing a username and password.

The EDD has an easy to follow YouTube guide on how to do this.

Once logged in to the EDD portal, go to “Register a New Account (DE1)” to apply for your EDD number.

Of course, if you need assistance in this process, don’t hesitate to reach out to AccuPay for guidance. 

NOTE: New employers in California start out with a 3.4 percent unemployment insurance rate. Without any unemployment benefits claims, this rate will remain the same for a period of time before beginning to decline. Conversely, the opposite happens if claims occurr. But luckily, the rate is capped at 6.2 percent.

Payroll for barbershops and salons, and more

Now that you’ve obtained both your EIN and EDD number, it’s time to get serious about finding a payroll provider.

But before you begin looking for payroll for barbershops and salons, you might want to identify how you plan to pay employees. More importantly, you don’t want to overlook these points if you’re starting payroll services for a small business.  

For example, how much are you willing to pay for the work done? How will you pay workers — by salary, hourly wages, or a combination of salary or hourly wages plus commission?

These are just some of the questions you’ll need to consider answering.

Take a look at the list below to help you develop a more comprehensive plan.

Compensation

Firstly, you need to know how much your employees will get paid. Also, another facet of this is determing how they will get paid. 

1. Decide your salaries, hourly wages, commissions, and bonuses: You might have to have “the talk” with your workers. And you may have to discuss a few somewhat difficult but necessary changes to how they are compensated.

From there, decide how you are going to pay your workers.

Compensation can be in the form of hourly wages, commissions, bonuses or any  combination of these.

Keep these points in mind as you identify which compensation method will work best for you:

1. Determine the hourly wages of your front office/receptionist employees
2. If your business is an S-Corp, the owners are required to receive a salary of some sort, and not just a draw.
3. Workers who provide a service could be paid by hour, by commission (or both) and by way of bonuses.
4. Consider paying commissions on product sales to match industry trends.

However, if you’re still not sure which compensation methods will fit your business, consider taking a deeper look into how other salon owners run their business. The beauty blog, “This Ugly Beauty Business” published a comprehensive article that discusses the benefits and downsides of each mode of compensation specifically when it comes to salon workers.  

In addition, you may also want to take note of this article when considering payroll for spas and massage parlors as well.

Employee classification

Secondly, your next step should be deciding how you classify those that work for you. Here are some key points that are usefull even when you’re establishing payroll services for small businesses: 

2. Use caution when you classify your workers. Don’t fall in the trap of misclassifying your employees to independent contractors. The penalties are simply not worth the risk (remember the nail salon that’s having to pay $1.2 million in fines).  

If you’re looking for more resources to help you better understand the difference between the two, you may want to read through these articles:

1. Timesheets.com: https://www.timesheets.com/blog/2018/04/independent-contractor-salon-industry)
2. AccuPay Systems: https://staging.kayaforce.com/blog/payroll-processing/employee-vs-independent-contractor/
3. This Ugly Beauty Business: https://www.thisuglybeautybusiness.com/2012/08/independent-contractor-general-contractor-subcontractor-and-self-employed-defined-for-the-beauty-industry.html

Pay schedules 

Finally, the last step is identifying how often you plan on paying employees. 

In other words: 

3. Decide on pay schedule – weekly, bi-weekly, semi-monthly, monthly. This is a step you don’t want to overlook when considering your options regarding payroll for barbershops and beauty salons. Here are a few tidbits to think about: 
   1. Weekly payroll works out very well for this industry. Moreover, odds are your workers are already used to the convenience of being paid in cash. Converting to a payroll system can throw some of that financial flow off balance.  But  a weekly frequency can provide a happy medium.
   2. Bi-weekly payroll is very convenient and popular with many employers. It allows the employer the freedom to think about payroll every other week instead of every week.
   3. Semi-monthly frequency is an ok method, but not ideal. It’s hard to deal with pay dates falling on weekends. Furthermore, holidays add more complexity to this frequency.
   4. Monthly payroll frequency only really works out for those who have other sources of income, or can simply draw from their business. As a result, this option works out for business owners themselves but not so much for employees.

The cost of processing payroll may vary with the different pay frequencies outlined above. If you would like to check how much it could cost you, check out our online pricing tool.

Choosing a Payroll Provider 

Now that you’re all set up as an employer, it’s time to start processing payroll.

But, wait. Do you have an in-house accounting or payroll department?

As a salon or barbershop, odds are you don’t. And that’s perfectly fine.

Just because you’re now required to pay workers via payroll doesn’t mean you have to spend additional money, time and resources to hire someone to fill that role.

In fact, outsourcing payroll for spas and massage parlors, like payroll for beauty salons and barbershops, can actually save you money.

Unfortuantely, for many, the topic of outsourcing payrolll services for small businesses can be a touchy subject.

You might find yourself asking questions like these:

How do I know if said payroll company will actually deliver on time?

Am I getting a good rate? What services am I actually paying for?

Is this a quality business I can trust?

If you find yourself asking any of the above questions, you’re not alone.

It’s normal to feel anxious about hiring a service provider to take over any aspect of your business. It can even be harder to think about when it comes to the livelihood of your employees.

And if you’ve been adhering to popular cash-only payment business models in the styling industry, these changes can be especially nerve-wracking.

The good news, however, is that there are quality payroll providers out there who offer exceptional services at reasonable price.

All it takes is a little research.

We welcome you to include AccuPay in your research and compare us with the other providers.

AccuPay Systems Payroll Services 

Curious to know how AccuPay can help with your payroll needs?

In a simplistic manner, we provide everything any small and medium-size business needs to run payroll and take care of employees. Our payroll processing suite of services includes:

1. Payroll Processing
2. Direct Deposit (FREE)
3. Tax payments to both state and Federal agencies
4. Complete tax filing services – both State and Federal
5. Printing and mailing of live checks
6. Workers Comp
7. Employee Benefits
8. Time keeping solutions (swipe cards and biometric clocks)
9. Human Resources
10. Employee onboarding

You can find out more information on pricing here.

Finding the right payroll services for small businesses

So if you’re not sure on where to begin in your effort to select the right  service provider when it comes payroll for barbershops and salons, use the checklists below to help you assess the service. 

Start by taking a look at what fees are assigned to each service a payroll provider offers. Also, make sure you get an overall look at how much those fees will cost you per pay period as well as annually.

Use this chart for a frame of reference 

Questions to ask your payroll service provider

What is included in the service? Be sure your payroll provider does not nickel and dime. Get a list of all the services performed by the provider. Also, ask what you as the business owner are responsible for.

Questions	Be on the look out for…
How long have you been in business?	10 plus years in business is a good sign. Remember, you want a provider that’s considered an expert when it comes to payroll services for barbershops and salons. Anything less than 10 years means the payroll provider hasn’t been around long enough to prove their quality of service.
Do I have access to help?	Don’t depend on online help only. Make sure you can speak with a live human being during business hours.
How many people can potentially help us?	Single person practitioners are not recommended. What happens if they are sick? Conversely, huge companies lack personability and make it impossible to speak with the same person twice.
Is the system web-based?	Web-based systems give you flexibility. Also, you want access to your data at all times.
What is the turnaround for setup?	A day or two is reasonable. Anything beyond this scope should raise questions.

Also keep an eye out for these signs

Questions	Be on the look out for…
Do you print and ship my W-2s?	If NO, be wary of the provider. If YES, how much? Get this info in writing.
Are setup forms paper-based on online?	Online forms make it easier to work with the payroll service provider. Not a deal breaker, but you might want to steer clear of companies that are not tech-savvy.
Do you discount your service for a period of time?	Avoid services that show you discounted services. Their fees are bound to go up at some point.
Do you provide training for your software?	Without one-on-one training, you will have lots to figure out on your own. And lots of mistakes and frustrations to endure.
Are setup forms paper-based on online?	Online forms make it easier to work with the payroll service provider. Not a deal breaker, but you might want to steer clear of companies that are not tech-savvy.
Do you have any guarantees?	Money back guarantees (in writing) show confidence that you will like the service. If not, look elsewhere.

Other considerations

Questions	Be on the look out for…
Can you do next day direct deposit?	If yes, this provider cares to make your business a priority.
Who will run (transmit) payroll?	Flexibility is a must. You should have the option to process your own payroll or to rely on the provider’s help as needed.
Do you provide online access to my account?	If no, be wary. You should be able to view and run your reports at any time.
Do you have a contract (1 year etc)?	If yes, run away. You should have the freedom to cancel your service at any time.
Are the costs and fees published online?	Companies that don’t disclose their fees might have a tendency to sneak in fees when you least expect it.
How do I receive my reports?	Online reports are convenient, and should NOT cost extra. If there is a cost involved, even for shipping, think twice.
Do extra reports cost money?	If so, this provider may have a tendency to hold back support from you, or prioritize others over you.
Do you have online reviews I can examine?	Good services should have a good online reputation to back the quality of their product and service.

Conclusion

Ideally, you want a payroll provider you can stick with for a long time. Just because you may now be required to pay employees via payroll does not mean it has to become a full time job on top of your business.

Payroll for spas and massage parlors, as well as barbershops and beauty salons can and should be hassle-free.

All you have to do is ask the right questions and stay in the loop about policy changes when it comes to payroll services for small businesses.

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How to read your pay stub

“How to read your pay stub” is easy-read guide to help you learn everything you need to know about the information presented in your pay stub each pay period. That includes: 

• The difference between a pay stub and a check
• Gross pay vs net pay
• What taxes are withheld, and why

….. and much much more. Furthermore, even if you have the basics of reading your pay stub down, this ultimate guide can be your key to making sure all the right deductions are made from your check. 

Getting your first paycheck can be exciting, but getting your first pay stub can be anything but. 

Unless you have a background in Human Resources or payroll, figuring how to read your pay stub isn’t always easy.

In fact, it can be downright intimidating if you don’t know where to look and what you’re looking for. 

If you’re struggling to understand just what exactly each figure on your pay stub is trying to tell you, check out our comprehensive guide on how to read your pay stub. 

Paycheck vs. pay stub— Is there a difference? 

You might even be sitting there wondering, “is there a difference of a paycheck vs. a pay stub?” 

The answer is yes.

A paycheck is an actual check that you can present to your bank and have deposited in your account. 

A pay stub, on the other hand, is a document— which sometimes comes attached to the check— that summarizes the amounts of the check and gives other necessary information such as deductions. 

As direct deposit continues to become the more popular mode of pay, you’re less likely to get a paper copy of your pay stub since you won’t receive a physical check. 

More frequently, you’ll receive an email with a link that will provide the same details you’d see on a physical copy of a pay stub. 

How to read your pay stub: gross pay vs. net pay 

One of the real secrets to how to read your pay stub is knowing what distinguishes your gross pay from your net pay. 

Without understanding the difference, you’ll struggle to get the full picture of what your pay stub is telling you. 

In short, gross pay is the amount of money you’re paid BEFORE taxes. Net pay (also called “take-home pay”) is what remains after all deductions have been taken out. 

How is this information critical to understanding how to read your pay stub? 

Here’s how: 

Both your gross pay and net pay are listed on your pay stub. Gross pay is also a line item that will be listed on your W2, so it’s important to keep tabs on this number. 

For more information about completing your W2 & box 12 codes, check out this free guide. 

On your pay stub, your gross salary will be broken down into wages you’ve earned for the pay period. 

This can vary based on how many hours you’ve worked, including any over time, and whether or not there’s been a change in your pay, but on most pay stubs this amount should stay relatively stable. 

The breakdown:

Your gross pay is calculated using your regular hourly rate, plus any overtime (typically paid at a time and a half). 

While pay stub organization can vary based on the employer, you’ll usually find a breakdown of your gross pay looks something like this:

The number of regular hours worked x your hourly rate = gross pay.

You want to keep an eye on your gross pay to make sure that your net pay is calculated accurately. 

From your gross pay, deductions are made. What’s left over is your net pay. 

Deductions can include everything from taxes to health care and retirement costs (more on that later). 

Here’s a simple way to know how to read your pay stub when it comes to net pay: 

Number of hours regularly worked x hourly rate — amount withheld for ALL deductions= net pay 

But how do you determine what deductions are being made from your check? And for what purpose? 

Keep reading to find out. 

Determining the tax withheld from your check

If you work full time then taxes are withheld from your paycheck each pay period. 

While that may not be a thought that makes you giddy with glee, knowing what taxes are being cut from your check, and why, can help you better assess your exemptions. 

There are several taxes that can show up on your pay stub. Some are the sole responsibility of the employee. Others are paid by the employer. 

They are: 

Employee Taxes	Employer Taxes
Federal Income Tax (FIT)
State Income Tax (SIT)	Federal Unemployment Tax (FUTA)
State Disability Insurance (SDI)	State Unemployment Tax (SUTA)
Social Security	Social Security
Medicare	Medicare

Taxes applied to employees

Federal Income Tax (FIT): Federal Income Taxes are taxes that are taken out of your earnings by the IRS. You typically elect your exemptions when you complete a W-4, and then based off your tax bracket, a specified percentage is deducted from your check. 

In the U.S. there are seven income tax brackets you can fall into: 

10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.6 percent.

State Income Tax (SIT): Similar to FIT, state income taxes are taken out of your check at a state level. 

State Disability Insurance (SDI): This particular tax, which gives people covered under it the benefit of wage replacement in the form of disability insurance and paid family leave, is only applicable in certain states such as California. 

Taxes paid by employers

Federal Unemployment Tax (FUTA): This is a tax paid by the employer. Basically put,  FUTA  (along with state unemployment programs)  funds unemployment payments and provides compensation to those workers who’ve been laid-off.  While the FUTA tax rate is 6 percent, most employers qualify for a tax break of 5.4 percent. 

State Unemployment Tax (SUTA): Similar to its federal counterpart, SUTA is also paid by the employer. It offers a type of unemployment insurance to workers who have lost their jobs. 

Shared taxes, W2s and box 12 codes

Social Security:  Social security is a federally mandated program, which helps finance retirement. As an employee, you will contribute 6.2 percent to this fund. Likewise, employers will also contribute 6.2 percent. 

Medicare: Medicare provides assistance with medical payments for those who have hit retirement. As an employee, 1.45 percent of your wages go toward this tax. Employers also pay 1.45 percent. 

Remember, if you make additional wages during the year (such as tips), uncollected social security and Medicare taxes should be listed on your among W2 and box 12 codes. 

Above all, keep in mind that different states may also have their own local taxes (or tax breaks) applied to income. 

While you may not always see the FUTA and SUTA tax reflected on your pay stub, you will definitely see SIT, FIT social security and medicare listed. Usually, you’ll find these together under the “deductions” section of your pay stub. 

Understanding benefit deductions

Now that you have an idea of the tax deductions listed on your pay stub, it’s time to take a look at the other deductions you’re likely to see. 

While each employee will see the same taxes applied to their paycheck, other deductions can vary among employees.

These discrepancies occur in light of the programs that employees participate in. 

Check out the list below for an idea of what benefits are pulled from your paycheck. 

Benefits and deductions on your pay stub

• Health Insurance: The amount you pay for health benefits will vary based on the number of dependents you’ve claimed and what health care programs you’ve selected. However, the benefit of participating in these types of plans is that they are pulled from your check pre-tax, meaning they are not subject to the same taxes your wages are. They include: 
•                      Vision 
•                      Dental 
•                      Health Care 
•                      Flexible Spending Account 
• Life Insurance: Again, this is another area where the amount deducted from your paycheck depends on the type of plan you have, your age and health. For that reason, plans rates range anywhere from $300/ year to $900/ year or more depending on these variables. 
• Retirement Plans: Contributions you make to any retirement accounts through your employer will also show up on your pay stub. Similarly, these contributions will vary based on your income and the percentage you’ve elected to contribute. Some basic plan types offered through your employer may include:
• 401(K)
• 403(B)
• Government 457

Need more information about taxes and retirement? Check out these tax-effective retirement strategies. 

Employers may match the contributions made to your FSA account or retirement plan. Because all employers are different, some of these amounts may show up on your pay stub while others don’t. For example, while you may see employer FSA contributions listed on your pay stub, you may not see those made to your retirement accounts. 

Other deductions you may see

Of course, there are also other deductions you made need to know in order to know how to read your pay stub. 

While this is in no way a comprehensive list (if you’d like to know more refer here), these are some of the more common deductions you might see: 

• Wage garnishments: These are deductions that are made to pay off a debt. They include unpaid taxes, child support, alimony, default payments on student loans, etc. 
• Union fringe deductions: Fringe benefits are taxable benefits that employees get, which include benefits an employee gets as a union laborer. 
• Union dues: Furthermore, if you happen to be part of a union, then you probably pay dues or fees to that union. These will  be deducted from your paycheck, which is also critical to knowing how to read your pay stub. 

How time off adds to your pay stub

Time off is another factor that can impact how to read your pay stub. 

Typically, personal time off (PTO) can be found listed in the same subsection as the hours you’ve worked, holiday and overtime. 

Essentially, this particular section will show you what PTO hours you have available and how many hours you’ve used thus far in the year. 

The representation of those hours may look something like this: 

Hours available/ hours used year-to-date

When it comes to how to read your pay stub in terms of vacation days or time-off,  this is a good number to keep your eye on. Since some employers follow the “use it or lose it” principle, this part of your pay stub can be critical in helping determine if you need to take time off. 

Most of all, you can rely on this section of your pay stub to help you calculate your pay if you plan on taking an extended vacation from work. 

Get to know the abbreviations

Part of the key to knowing how to read your pay stub is understanding what the abbreviations used stand for. 

For that reason, we’ve provided a list of the most common abbreviations featured on pay stubs and their meaning. 

• YTD: Year-to date, which is used to show your total income/ deduction thus far in the year 
• SS or FICA: Social Security
• PTO: Personal Time Off
• FT or FWT: Federal Tax
• ST or SWT: State taxes
• MWT: Medicare  tax withheld

Box 12 of the W-2  can be used for a great number of codes. This blog post explores them all in details

Year-to-date summaries and tax exemptions

Although year-to-date summaries can seem useless, they can actually make a few of payroll tasks more hassle-free.  

How? 

Firstly, they can allow you to ballpark the amount of taxes you’re paying and determine if you’re paying enough. It’s possible that you’re claiming too many (or too few) tax exemptions. 

Additionally, year-to-date summaries can help to make filling out W2 and box 12 codes so much easier because it will help you better conceptualize how much an employee made within the year as well as the amounts allocated to other benefits (retirement, insurance, etc.) 

By now, you’ve hopefully got a better idea of how to read your pay stub. This information can also provide you a better look into how tax withholdings and exemptions work. 

Perks of paperless payroll

When it comes to doing the best you can for the environment while also building a successful business, sometimes the key is to find areas were you can cut out the use of paper. Payroll is definitely one of them.  Paperless payroll offers plenty of benefits that will not only help the environment in the long run, but also help the overall image and bottom line of your business. Just take a look. 

The perks of paperless payroll are pretty infinite.  

As we look toward more sustainable ways of living on a global scale, paperless is definitely the way to go. 

Payroll is among the top backend business functions that can take up a lot of paper. Going paperless can not only make your business more environmentally friendly, but it can also help you save on your bottom line.  

1.Cost saving

It’s easy to take for granted just how much money we spend on paper every single day. 

But the fact of the matter is that businesses spend thousands of dollars on paper every year. If you’re looking for way to cut down on cost, paperless payroll is definitely the way to go.

According to the American Payroll Association, businesses that switched to paperless payroll saved an average of $2.87 to $3.15 per pay run. 

Businesses also saved money on reissuing lost or stolen checks, which can cost about $8 to $10 per replacement check. 

2. Hassle-free

In today’s fast-paced, web-based world, paper can just weigh you down. 

In fact, one of the perks of paperless payroll is that it saves a lot hassle in the long run. Here are some of the ways it can make life a little easier:

• 1Pay is alway available on-time regardless of holidays
• 2Employees no longer have to fuss with manual time cards; plus, intergrated time clocks and time management systems ensure that all time logged is accurate
• 3Employees have quick and easy access to their pay stubs, w-2, etc. online or on a mobile device
• 4Fewer errors
• 5Tax filings and payments are automated 

3. Easier access to employee data

If your company has an in-house HR department, you’re probably familiar with how much paperwork comes with the territory. 

And you know how much time and effort it can take to track down employee information when you need it. 

Paperless payroll eliminates that problem because all pertinent information about your employees is available in once place: the cloud.

Learn more about the difference between Full service Payroll vs. in-house payroll.

More importantly,  cloud based system are secure and allow you with access to that information at any time from almost anywhere. 

Out of all the perks of paperless payroll, the real holy grail is that it will save  you and your employees time, money and effort while also helping your business grow sustainably — and that’s something everyone can agree is good business.