What Are Payroll Liabilities?

Wouldn’t it be nice if you could just pay employees and be done with it? Unfortunately, there is much more to payroll than simply paying your employees. There is also Social Security, Medicare and state and federal taxes to consider. All of these things fall under the category of payroll liabilities.

So what are payroll liabilities exactly? Basically, they are any mandatory payment that you make to or on behalf of an employee. In this article, we will cover in more detail what payroll liabilities entail and what you should know about them.


Compensation often involves more than just how much an employee makes per hour. Compensation includes not only wages, salaries commissions and overtime, but also retroactive and backpay.

In fact, any payment made in exchange for work, including sick/personal leave and severance, counts. Even benefits such as health, retirement, insurance or vacations can fall under the compensation umbrella if negotiated as pay.


This is the employees’ earned income that you withhold and use to make payments on their behalf. It involves both government and private entities.

Medicare, Social Security and federal income tax will be the same no matter where you are located. However, state, county and even city taxes will vary. Health, life, disability, retirement, adoption assistance and flex spending are withheld if not negotiated as part of a compensation package. These tend to be company/employee specific.

Employer Taxes and Insurance

As an employer, you pay a state and federal unemployment tax as well as a share of Social Security and Medicare. Local and state statutes may require additional payments for things such as job training and worker’s compensation.

How to Handle Withholding

Before you withhold an employee’s earnings, they must agree to this by completing a W-4 tax form. The specific amount withheld from each worker is based on individual income and deductions authorized on their W-4s.

Be aware that employees may change their number of deductions, which means you need to adjust amounts taken out. This is one instance where payroll software really comes in handy.

Agreed upon voluntary deductions such as insurance, company stock purchases and union dues are also legally binding. Failure to make these payments could have serious legal ramifications.

Paying Your Share of Payroll Taxes

The portion of labor-related taxes that you owe is affected by new statutes and location. Below are the percentages that employers are expected to contribute at the time this was written:

-Federal (FUTA) tax: 0.6% – 6%

-State (SUTA) tax:0.6% – 6%

-Medicare tax: 1.45%

-Social Security tax: 6.2%

Late Payments

The IRS charges employers a 2% penalty for payroll taxes that are 1 to 5 days late, and it only goes up from there. After the 16th day, there is a 10% penalty for late payment and interest will be charged on the unpaid balance. If you are going to be late, you need to file form 941.This will not keep you from being penalized, but it will halt further action. There is also an online filing option with the IRS.

Payroll Liabilities: A Process That Improves With Practice

While handling payroll liabilities is a lot of work on the front end, it can save you even more work on the back end. The good thing is that most people say there is a pretty quick learning curve when dealing with the ins and outs of payroll liabilities. Once you get the hang of it, you should be just fine.

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