Payroll is one of the most compliance-dense areas of running a small business — and one of the most dangerous to get wrong. Unlike a missed invoicing deadline (which hurts cash flow), a missed payroll tax deposit attracts immediate IRS attention and can result in personal liability against the business owner. The questions below address the most common payroll concerns from Utah small business owners.
For a complete payroll setup walkthrough, see our payroll processing guide.
Getting Started With Payroll
When do I need to set up payroll?
You need payroll before your first employee’s first day — not after. Payroll setup requires:
- An EIN (Employer Identification Number) from the IRS
- Registration with the Utah State Tax Commission for income tax withholding (at tap.utah.gov)
- Registration with the Utah Department of Workforce Services for Unemployment Insurance (SUI)
- A payroll system that can calculate taxes, process direct deposit, and file returns
Trying to catch up on payroll registration after employees have already been paid creates immediate compliance problems. Set it up first.
Should I use payroll software or do it manually?
Never process payroll manually. Payroll tax calculations — federal income tax withholding, FICA, state withholding, FUTA, SUI — are complicated and change annually. Payroll deposit schedules are precise. Errors trigger penalties.
Use a payroll service. Recommended options for Utah small businesses:
- Gusto: Best for 1–50 employees; integrates cleanly with QBO and Xero; handles Utah withholding and SUI automatically
- QBO Payroll (built-in): Seamless if already using QuickBooks Online
- ADP: Best for larger businesses with complex needs
- Paychex: Strong for businesses needing HR support alongside payroll
A payroll service for a small business typically costs $50–$150/month plus per-employee fees — far less than the cost of a single payroll mistake.
What information do I need to collect from each new employee before the first paycheck?
- Form W-4 (federal withholding; updated 2020 version)
- Utah State Withholding Form (TC-40W)
- Form I-9 (employment eligibility verification — required within 3 business days of hire)
- Direct deposit authorization (bank account and routing number)
- Contact information and emergency contacts
- Benefits enrollment forms (health insurance, retirement)
Payroll Taxes
What payroll taxes am I responsible for as an employer?
As an employer, you are responsible for:
Withholding from employee paychecks:
- Federal income tax (based on W-4 withholding elections)
- Social Security: 6.2% of wages up to the wage base ($168,600 in 2024)
- Medicare: 1.45% of all wages (plus 0.9% Additional Medicare Tax for employees earning over $200,000)
- Utah state income tax withholding
Paying out of employer funds (not withheld from employees):
- Employer Social Security: 6.2%
- Employer Medicare: 1.45%
- FUTA: 6% on first $7,000 per employee (reduced to 0.6% with Utah SUI credit)
- Utah SUI: Rate assigned by Utah Department of Workforce Services (ranges from 0.1% to 7.2%)
How often do I need to deposit payroll taxes?
Your deposit schedule is determined by your total payroll tax liability in the lookback period (the 12-month period ending June 30 of the prior year):
| Depositor Type | Lookback Period Liability | Deposit Due |
|---|---|---|
| Monthly depositor | Under $50,000 | By the 15th of the following month |
| Semi-weekly depositor | $50,000 or more | Wednesday (payrolls Sat–Tue) or Friday (payrolls Wed–Fri) |
| Next-day rule | $100,000+ on a single day | Next business day, regardless of normal schedule |
New employers are monthly depositors by default.
What happens if I miss a payroll tax deposit?
The IRS failure-to-deposit penalty:
- 2% — 1 to 5 days late
- 5% — 6 to 15 days late
- 10% — more than 15 days late (or received notice from IRS to remit immediately)
- 15% — amounts not deposited within 10 days of first IRS notice
Beyond penalties, the IRS can assess the Trust Fund Recovery Penalty against individuals personally — making the business owner, CFO, or bookkeeper personally liable for the employee withholding portion of undeposited payroll taxes. This liability survives bankruptcy and follows individuals personally.
Employee vs. Independent Contractor
How do I know whether a worker is an employee or independent contractor?
The IRS uses a three-part test examining behavioral control, financial control, and the type of relationship:
- Behavioral control: Does the business control how the work is done, not just the result? (Employees: controlled. Contractors: independent.)
- Financial control: Does the business control economic aspects — does the worker have a significant investment in their own tools/facilities, work for multiple clients, and offer services to the general market? (Employees: typically no. Contractors: typically yes.)
- Type of relationship: Are there written contracts, benefits (insurance, pension, vacation), permanent relationships, and work integral to the business? (Employees: typically yes to all.)
When in doubt, use the default: treat the worker as an employee. The cost of misclassification — back payroll taxes, penalties, interest, and potential state labor law violations — far exceeds the cost of payroll compliance.
See our W-2 vs. 1099 guide for the full IRS criteria analysis.
Can I issue both a W-2 and a 1099 to the same person?
Only in rare circumstances where a worker is genuinely both an employee and an independent contractor performing distinct, separate services. If the IRS reviews this, they will scrutinize it closely. Most situations where an employer issues both to the same person are errors — the individual is an employee and the 1099 income should have been handled through payroll.
S-Corporation Owner Salary
I own an S-Corp — do I have to pay myself a salary?
Yes. S-Corp owners who provide services to the corporation must pay themselves a “reasonable salary” via W-2 payroll before taking profit distributions. The salary is subject to FICA; distributions above the salary are not.
The IRS actively audits S-Corps with no officer compensation or with unusually low salaries relative to distributions. The “reasonable salary” standard requires paying what a similar position would command in the market for the same services.
How do I determine what my S-Corp salary should be?
Base reasonable salary on:
- What your position would pay in the marketplace (use BLS wage data, industry surveys, or salary databases)
- The time you spend in the business
- The complexity and value of the services you provide
A common approach for small S-Corps: reasonable salary = 40%–60% of total S-Corp net income, benchmarked against comparable market compensation. The exact number should be documented and defensible.
What is the S-Corp self-employed health insurance deduction?
S-Corp shareholders who own more than 2% of the company can deduct health insurance premiums for themselves and their families. The premiums must be:
- Included in the shareholder’s W-2 Box 1 wages (reported as wages, then deducted)
- Paid by the S-Corp or reimbursed to the shareholder
- Deducted on Form 1040 as a self-employed health insurance adjustment
This is a frequently mishandled deduction — premiums not included in W-2 wages cannot be deducted on the personal return.
Payroll Year-End
What do I need to do at year-end for payroll?
- Reconcile all payroll ledger accounts to the annual payroll summary
- Confirm all quarterly Form 941s match the annual payroll total
- Issue W-2s to all employees by January 31
- File W-2s with the Social Security Administration by January 31
- Issue 1099-NECs to all qualifying contractors by January 31
- File Form 940 (FUTA) by January 31
- Confirm Utah W-2 reporting is filed with the Utah State Tax Commission
What is the difference between W-2 and 1099 filing with Utah?
Utah requires employers to submit W-2 information to the Utah State Tax Commission by January 31. If you use a payroll provider (Gusto, QBO Payroll, ADP), they typically handle Utah W-2 filing automatically as part of the service.
1099-NEC filers with Utah recipients may also be required to file with Utah — check tap.utah.gov for current requirements, as Utah has expanded its 1099 filing rules in recent years.
Other Common Payroll Questions
What is workers’ compensation and is it required in Utah?
Workers’ compensation provides medical and disability benefits to employees who are injured on the job. In Utah, workers’ compensation coverage is required for any business with one or more employees. Purchase coverage through a private insurance carrier or the Utah state fund (Pinnacol Assurance).
Failing to carry workers’ comp coverage is a Class B misdemeanor in Utah and exposes the business owner to personal liability for all workplace injury claims.
What is the Utah minimum wage?
Utah follows the federal minimum wage: $7.25 per hour as of 2024. Utah has not enacted a state minimum wage above the federal minimum. Tipped employees may be paid a lower cash wage with the expectation that tips will bring total compensation to at least minimum wage.
Can I pay employees in cash?
Yes, but you still owe all payroll taxes on cash wages. Cash wages must be recorded, reported on W-2s, and included in payroll tax calculations exactly like check or direct deposit payments. “Off the books” cash payments to employees are illegal and can result in criminal prosecution, not just civil penalties.
Call (801) 927-1337 or visit cpaone.net/bookkeeping-payroll to get your payroll set up correctly from day one, or to review your current payroll compliance. We help Utah businesses configure payroll systems, establish the right deposit schedule, and ensure every filing is made on time.
About the Author
Missy Dennis, CPA | Partner | FJ & Associates, PLLC | Kaysville, Utah
Missy holds a Master of Accounting degree from the University of Utah and is a licensed Certified Public Accountant. She is committed to providing clear, accurate, and actionable guidance so clients can navigate complex financial decisions with confidence. With more than twenty years of public accounting experience, Missy Dennis specializes in: tax preparation and tax advisory; bookkeeping strategy alignment; estate and trust taxation; audit and consulting services; low-income housing tax credits; non-profit accounting; and small- and mid-sized business advisory.
