You may be familiar with the general regulations surrounding payroll, but what about the industry-specific payroll rules? Depending on the industry your business is in, you may have to comply with additional reporting requirements, tax rules, or even minimum wage limits. The agricultural, restaurant, construction, religious, and nonprofit industries all have special rules businesses must follow to avoid penalties.
Although some businesses have unique considerations when it comes to doing payroll, the general steps are the same. You need to pay your employees at least minimum wage, overtime if they’re eligible, and both manage and remit taxes.
Here are the industries that have different payroll rules:
1. Household Employee Payroll
The way you classify household workers, such as nannies or housekeepers, is important. The Internal Revenue Service (IRS) has outlined how they should be classified and paid (employee versus contractor). Usually, nannies and other home-based family care providers and housekeeping staff are considered employees of the family that pays them.
Some home-based workers are classified as independent contractors which, in certain cases, is fine, as long as you don’t control how they perform their job and they are able to work for multiple customers (or families)—for example, in some cases, a babysitter that works for multiple families as a contractor.
If household employees work for a single family with restrictions that don’t allow them to pick up additional employment opportunities, the IRS will more than likely consider those individuals employees of the family. There is a lot to consider when employing and paying household employees, so do your homework ahead of time. Learn more about the easiest way to pay nannies in our article about Nanny Payroll Services.
2. Restaurant Payroll
Restaurant payroll consists of numerous regulations owners must abide by to avoid being penalized. Some of these pay rules include:
- Tip pooling: How you can combine employee tips for redistribution
- Tip reporting: How to report employee tips to the IRS
- Tipped minimum wage: Lower minimum wage employers can pay workers who receive tips—varies by state
Although there are a number of restaurant payroll services that work well for eateries of any size, doing some research on providers that meet your specific foodservice needs will be an important first step.
3. Agricultural Payroll
Agricultural payroll includes businesses that engage in or with farming, dairy, ranching, and crop fields. The smaller a farm operation is, especially if it’s a mostly family-staffed farm operation, the more likely it will be exempt from minimum wage and overtime pay laws. And in many cases, the times and hours that minors can start working are less restrictive than for other industries.
Some FLSA requirements are the same, regardless of what your agricultural operations look like. Employers must keep accurate timekeeping records of all employees’ work time (regardless of whether it’s time spent traveling between fields, waiting on equipment fixes, on-site supervisor arrival, or for standard work breaks). We still encourage you to stay abreast of important regulations, because farm payroll is usually eligible for the most minimum wage and overtime exemptions.
4. Nonprofit Payroll
Nonprofit payroll is unique, because it’s exempt from federal income taxes, even though the organizations still need to collect it from their employees. They must classify the people providing services to them in one of three ways: as full- or part-time employees, independent contractors, or volunteers (who are not generally compensated).
Nonprofit organizations are also classified into subcategories that have different tax regulations. Some nonprofit organizations, like 501(c)(3)s, are exempt from federal unemployment taxes (FUTA), but some other nonprofits are not. The IRS has outlined several of the nonprofit regulations relating to payroll.
5. Religious Organizations Payroll
As with many industries on this list, payroll for religious institutions, regardless of faith or ideology, must also adhere to several unique payroll and employment laws. For example, it’s important to be clear on any housing allowances you pay clergy members or ministers or any utilities that employees pay. Some allowances (specifically housing for ministers) aren’t taxable and can be excluded from the gross income you report for their taxes.
6. Construction Payroll
The construction industry has several unique payroll requirements per the IRS. For instance, because many construction employees routinely travel from one job site to the next, employers must be aware that they’re responsible for paying non-exempt employees for travel time to sites that are outside of their “normal commute.”
From state to state, there are different versions of this law that employers need guidance on to ensure their construction payroll is accurate. Also, if your construction company works on federal contracts, it will be subject to certified payroll requirements (which involves submitting a special weekly payroll form to the agency overseeing contract funds).
Additional Types of Specific Payroll Rules
Processing payroll for international employees can get complicated. The country your employees reside in, how long they’ll be working for you, and whether or not you’re required to establish an in-country presence will all affect how you need to handle payroll.
If you’re an official employee of your business, like under an S-corp, you’re subject to self-employed payroll rules. You’ll need to pay yourself a reasonable salary (going market rate) along with the proper taxes according to your business setup.
Payroll for Accounting Professionals
This section is less about industry-specific payroll laws on how to pay accountants or finance professionals and more about how accounting and bookkeeping professionals should process their client’s payroll. Depending on the type of business clients you have, you may need to know the payroll caveats for multiple industries (like the ones we describe in this article). This is where payroll software for accountants can assist. Gusto has a Gusto for Partners product that allows you to set up and manage payroll for all of your clients separately.
Frequently Asked Questions (FAQs) About Doing Payroll in Different Industries
Although some industries require unique approaches to payroll, everyone wants their employees to be paid. We have found that, regardless of industry, many small businesses have the same questions. We address a few here that will help you further define what payroll resource is best for you.
Are there other industries that may require specific payroll platforms?
There are many industries not listed here that have specific requirements. Whether they are IRS regulations or just best practices, some additional industries that we recommend you get specialist guidance for include:
- Oil and gas
- Day laborers
- Call centers
- First responders
- Information technology (IT) and computer
Regardless of my industry, what are the basic things I need to know about processing payroll?
There are several functions that payroll processing serves. Here are the main attributes of payroll processing, regardless of what industry you operate within:
- A good payroll system is the best way to pay employees.
- If your organization maintains healthcare benefits, payroll will be how you withdraw from your employees’ pay to fund the program(s).
- You must withhold and pay your employees’ income tax.
- You must report wage earnings to the government.
- Payroll systems help maintain overall labor law compliance.
Do I need a payroll system or can I just pay employees in cash?
The simple answer is “yes,” you can pay employees in cash. However, you will more than likely catch the IRS’ attention. This can make accounting tasks much more difficult for your controller, place the burden of taxation onto your employee (which is usually disastrous), and you will have a challenging time maintaining and expanding benefits to your employees.
Many small companies choose not to manage payroll in-house because the regulations, tax laws, and related requirements are too many to keep current on. When you take a step back to consider all of the industry-specific payroll forms, tax rules, and labor laws, it can seem daunting. Utilizing the resources listed here (in addition to the IRS website) as your starting point will help you move forward in the right direction.