Article
Do you know about the new payroll tax holiday?
New legislation means hiring seasonal student workers for the summer makes more "cents."
May 6, 2010 by Richard Yelton — Principal, Windham Brannon, P.C.
Operators and executives, I've got some good news for the summer: Chances are, if your franchisees typically hire younger workers -- such as students -- to work summer jobs, your company may be paying more payroll taxes than required.
The HIRE Act, which was passed on March 18, 2010, provides tax incentives for hiring recently unemployed workers. One major benefit provided is an exemption for the employer portion of Social Security taxes on certain employees hired after February 3, 2010 and before January 1, 2011. The catch is that the employee hired must not have been employed for more than 40 hours during the previous 60-day period.
Well, think about what segment of our society is habitually unemployed for nine months of the year? That's right, students!
You may typically hire high-school or college students to work in your kitchen, or as servers, or delivery drivers. It is these types of workers that could qualify for the Social Security exemption.
Employers are required to pay Social Security taxes of 6.2 percent of the employee's wages. This amount is in addition to the equal portion of Social Security taxes that is withheld from the employee's paycheck. The Social Security exemption applies to the employer's portion only, which means that you, as the employer, benefit from the payroll tax savings, while your employee must still have their portion withheld from their paycheck.
As an example of the potential savings, assume that you employ a full-time kitchen worker that is paid $8 per hour, or $320 per week. If that employee were a student working for the summer (or any other qualified employee), then, over the course of the summer, you could save around $240 in payroll taxes per that type of employee. Multiply that savings by the number of eligible workers across units, and you can see that the benefits can really start adding up. This benefit applies to part-time workers as well as full-time staff.
Be careful, though, if you have employees that qualify for both the Social Security exemption and the Work Opportunity Tax Credit (WOTC), since you are not able to claim both for the same employee. The WOTC typically allows employers a tax credit of 40 percent of the first $6,000 of wages paid to employees in certain targeted groups, such as unemployed veterans and food stamp recipients. In those instances, you will need to determine which tax break benefits you the most. Often times the WOTC may be more advantageous. If so, you may elect out of the payroll tax holiday. This election may be made on an employee-by-employee basis.
Ultimately, if you have hired or expect to soon hire an employee that could qualify for the Social Security exemption, talk to your accountant or your payroll provider, so that they can help you navigate through the specific rules.
Hopefully you can then use the tax savings from hiring for summer positions for a more beneficial expense, such as equipment upgrades across units.
Richard Yelton is a principal at Windham Brannon in Atlanta. His specialties include restaurant and hospitality tax, mergers and acquisitions, federal and multi-state income tax planning and compliance and more. Visit him at the Windham Brannon website.
*Flickr photo by silverlinedwinnebago
