You’re getting your lawn care business off the ground and now it is time to figure out how you’re going to pay employees. To pay your workers, you’ve got to figure out how to register your business with the IRS, choose how to run payroll, and decide what type of payment is a good fit for your crew.
Figuring out lawn care employee payment isn’t simple, but it doesn’t have to be overwhelming. I’m going to give you a rundown on starting the process, I’ll explain payroll aspects, and suggest payment options so you’ll be confident in your decisions!
To best pay your lawn care employees, you’ll need to:
- Get your EIN.
- Select a payroll process.
- Choose a payment method.
Now, let’s get down to business!
Getting an EIN doesn’t have to be a pain
You’ve probably come across the acronym EIN while reading about starting your lawn care business. EIN is short for Employer Identification Number, and you can think of it as something like a social security number for your business (only you don’t have to keep it a secret as it is not considered sensitive information).
If you’ve been putting off getting an EIN for your lawn care business because it sounds like a pain in the neck, I’ve got some good news:
- Getting an EIN is easy! Apply for your EIN online— your application can be completed in minutes!
- Getting an EIN is free! There are fraudulent sites out there that attempt to extract a fee from unwitting applicants for this service, so just remember– it is free, and be sure to use the official IRS website to apply for your EIN.
- You’ll receive your EIN right away! After you submit your application online, you will be assigned your EIN immediately.
If you don’t want to apply for an EIN online, there are other options, but they will take longer–anywhere from four business days by fax to four weeks by mail. According to the IRS, “You should apply for an EIN early enough to have your number when you need to file a return or make a deposit,” so keep that in mind.
An EIN is necessary for tax administration purposes– you need one to legally hire employees. You’ll also need that EIN to open your business account at the bank. A business bank account is necessary to keep your personal and business incomes and expenses separate, as you’ll set up and run your payroll from your business bank account.
A little about payroll
Payroll software made for small businesses like yours is probably more affordable than you think, so be sure to check out all your options, even if you’re considering running payroll manually.
You can certainly run payroll manually if you’re so inclined, but I don’t recommend it. It may seem like a good way to save a little expense, but it will cost a lot of your time and mental exertion when you probably won’t have much to spare. Doing your payroll is also prone to human error, which can cost you more in penalties down the road.
Payroll software will give you one less thing to worry about. Payroll companies like Gusto and OnPay have basic plans that not only run payroll, but also automate tax filings and payments, and include an employee help portal.
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The Best Payment Method for Your Lawn Care Employees
I am going to give you a rundown of common lawn care employee payment methods. I’ll tell you what works and what doesn’t so you can use that information to determine for yourself what’s right for your situation.
Cold, hard cash: A cautionary tale
Cash is a common method of payment for lawn care employees, and many of them like it, as do their employers.
It’s easy for the employees to use their cash immediately without the need for an ID or a bank account. Employers like it because they don’t have to contend with the challenges of withholding taxes, wage garnishment, etc., and the perceived hassle of running a payroll. In short, it’s easy–or so it seems.
The main drawback of paying your lawn care employees in cash is:
- It’s illegal and there are lots of different ways to get caught.
Lawn care employers on the popular Lawnsite.com forum have many stories of people they know being caught by the IRS via disgruntled employees, estranged spouses, on-the-job injury accidents, and more.
Cash employers are risking it all– not just fines and jail time, but also their business and their finances.
And a word about 1099s
In the landscaping world, there’s a lot of magical thinking about the 1099 form.
As if an amulet, the 1099 form is often mistakenly believed to both allow the employer to designate their employees as independent contractors at whim–and pay them in cash–while simultaneously absolving the employer of any responsibility of withholding taxes, running a proper payroll, etc., all with the blessing of the IRS.
Let me tell you, that’s not how it works. The IRS has clear guidelines about who is an independent contractor and who is an employee.
As an employer, you must know what those guidelines are and follow them.
According to the IRS, “If a business misclassified an employee, the business can be held liable for employment taxes for that worker. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes.”
There are legitimate reasons to use a 1099. For instance, if you occasionally subcontract to an irrigation specialist, an arborist, a horticulturist, and so on–that person should get a 1099. That’s a different kind of usage than the people who show up to mow every day for your business, though. If someone tells you otherwise, don’t fall for it!
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Checks Out!
An honest paycheck probably sounds pretty good after reading about the caveats of cash. There are a few benefits and a few drawbacks, so let’s go over them.
Some of the benefits of paying by paper checks:
- You’ve created a paper trail.
- Your employees have their physical pay stubs.
- You only need a business checking account to print paychecks.
- Your employees don’t need bank accounts to cash their checks.
In an increasingly paperless era, the benefits of paper checks aren’t as relevant as they once were, as you’ll see when I contrast them with direct deposit.
Relative to digital banking, here are some of the drawbacks of paper checks:
- You’ll be going to the trouble of mailing them or handing them out on payday.
- Checks are less secure (they can be lost in the mail or stolen).
- Checks are inconvenient for you and your employees.
- Employees without bank accounts will have to pay fees to cash their checks.
- Issuing paychecks cost you more than using direct deposit.
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Direct Deposit
Direct deposit electronically transfers employees’ checks from the business account into the employees’ bank accounts directly, bypassing the need to issue paper checks.
This is a payment method that both employees and employers love. The benefits of direct deposit are many– let’s go over a few of the big ones.
For starters, your employees have instant access to their funds on payday. This is a huge convenience for your employees!
- There’s no need for an employee to make a special trip to work on their day off to pick up their check. If an employee is away on payday, their pay is already accessible in their bank account.
- There’s no need for an employee to make a trip to the bank and wait in line at the ATM.
- Your employees can automate the way their pay is split among accounts– such as X amount in checking, and X amount in savings.
One drawback of direct deposit is that your employees need to have a bank account to utilize it.
For you the employer, there’s less to contend with when compared to checks. Here are some benefits to you.
- There’s no need to hang around on Friday passing out paychecks.
- There’s no valuable time spent mailing out paper checks
- There’s no headache of voiding and re-issuing a lost or stolen check.
- There’s no trying to figure out how to pay your employees paychecks when payday falls on a holiday.
Congratulations on taking this next big step in your lawn care business. I hope you have learned some things that will help you proceed with confidence!
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Frequently Asked Questions
How hard is it to run my payroll?
There’s a lot of checking/rechecking math, you’ll need to keep careful track of different employees’ deductions, know and follow numerous state and federal tax rules, and remember when to file which forms (and submit them on time). Slip up and it will cost you!
How much does a payroll service cost?
Figure out a base fee of about $40 and add about $7 per employee to get an idea of your cost per month (roughly $110 for 10 employees). These platforms often throw in a few other features, so compare plans carefully to find the perfect fit.
To learn more on how you can start your own landscaping business, check out my startup documents here.
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Meet Shawn Chun: Entrepreneur and Landscape Business Fan.
I’m a happy individual who happens to be an entrepreneur. I have owned several types of businesses in my life from a coffee shop to an import and export business to an online review business plus a few more and now I create online resources for those interested in starting new ventures. It’s demanding work but I love it. I do it for those passionate about their business and their goals. That’s why when I meet a landscape business owner at a job site, driving down the road or anywhere else I see myself. I know how hard the struggle is to retain clients, find good employees and keep the business growing all while trying to stay competitive.
That’s why I created Landscaping Business Boss: I want to help landscape business owners like you build a thriving business that brings you endless joy and supports your ideal lifestyle.