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5 Industries with Sneaky Payroll Tax Requirements

Every year, small businesses spend countless hours trying to figure out payroll – and they often get it wrong. According to the U.S. Small Business Administration, approximately 45 percent of businesses incur IRS penalties each year ...

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Every year, small businesses spend countless hours trying to figure out payroll – and they often get it wrong. According to the U.S. Small Business Administration, approximately 45 percent of businesses incur IRS penalties each year – many of them payroll related. In addition to having to deal with corrections, they have to pay average penalties of $845.

Sometimes fees are required because the usual suspects like late filings and math errors rear their ugly heads. But there are also a few industries that have special payroll tax filing requirements. Read on for a quick rundown of the places where even seasoned tax pros can slip up.

A word about accountants and payroll

In your quest to be a trusted advisor, you can save clients a lot of time and mental anguish by working to make sure they get payroll right. Offering payroll services may mean a few more billable hours, but more importantly, it will put you in a better position to understand what’s going on with your clients’ businesses. For busy business owners, you will also show how indispensable you can be by taking yet another big burden off their back. With that said, offering mistake-free payroll services requires staying on top of the special payroll circumstances that different clients may have to navigate.

Processing payroll usually involves the basic steps of paying employees, withholding and paying taxes, then filing Form 941 each quarter and providing W-2 and 1099 forms each January. But when do you need to file Form 943? When is overtime not simply time and a half? And what the heck is a parsonage allowance? Here’s a refresher on the special payroll requirements in five common industries.


The restaurant industry presents a few unique payroll challenges stemming from the fact that employees typically receive tipped wages. Tipped wages can be confusing, and not all payroll providers are good at handling them.

Because many restaurant employees receive tips, they’re subject to a lower minimum wage threshold than other workers. The applicable minimum wage will vary from state to state, and you need to make sure your clients (or their payroll providers) allow them to enter a minimum wage that’s below the federal standard. Another common area for mistakes is calculating overtime with tipped wages. Overtime hours are based on the minimum wage rate, not the tipped minimum wage. Many payroll providers get this calculation wrong, which can lead to trouble with both the IRS and Department of Labor (DOL).

Nonprofit Organizations

Nonprofits have unique payroll needs because they’re exempt from some of the major filing requirements that other companies face. Unlike for-profit organizations, companies classified as nonprofits under Section 501(c)(3) of the Internal Revenue Code are exempt from payments required by the Federal Unemployment Tax Act (FUTA). Because FUTA tax is reported on Form 940, nonprofits are exempt from filing those forms, too. In this case your clients actually get to skip a step!

Farms and Agriculture

Farms, ranches and other businesses in the agriculture sector have a whole host of special requirements that can trip up companies when it comes to processing payroll. Like most companies, farm businesses are typically required to file Form 941 each quarter for their nonfarm employees (like office staff and delivery drivers), but they must make annual Form 943 filings for their agricultural employees, too.

The DOL also allows farm and agriculture workers to be paid minimum wages below the federal standard, so it’s important that any payroll software you use allows you to input figures under the minimum wage. Many farm businesses also pay some workers in piecemeal wages (for example, $1 per bushel of crops), further complicating payroll.

Finally, the farm and agriculture industry employs many day laborers and temporary residents from other countries who are working under H-2A visas through a special work permit process. That means your payroll provider needs to be able to process their tax filings as well, not just those of full-time W-2 employees and 1099 contractors.


Unlike other businesses with predictable, year-round operations, the construction industry functions around discrete jobs that last for varying amounts of time. A construction business needs to be able to do job costing – allocating a given worker’s time between projects, attributing billing and expenses to their proper jobs. One of the best ways to do that is to integrate payroll systems with the timecard and timekeeping systems the company uses. Confirming that your payroll provider offers those integrations can go a long way toward simplifying payroll services for your construction clients.

Church and Clergy

Like other nonprofits, churches and clergy have different tax and payroll requirements than other organizations. They, too, are exempt from paying FUTA taxes and filing the corresponding Form 940. Ministers are also exempt from paying Social Security and Medicare taxes (but they should be directed to pay into the Social Security system as directed by the Self Employment Contributions Act [SECA]). Additionally, many churches pay some or all of the housing costs for ministers. The minister is permitted a parsonage allowance, which means that he or she is not subject to paying personal income taxes for the value of the housing.

The Bottom Line

If you’re going to help your clients with payroll, it’s important that you give careful thought to who your clients are. The industries they’re in matter – there’s no one-size-fits-all solution when it comes to processing payroll, and not every payroll provider is up to the task of handling every niche. If you want to do the job right and be equipped to serve all your clients, it’s worth doing your research to make sure you’re delivering the value your clients expect from you.


Mark McKee is the president and COO of OnPay, the top-rated payroll software company. His 15 years of experience in institutional investing, equity research, private equity, and investment banking give him deep insights into what growing businesses and their accountants need to build easy, error-free financial practices.


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