At Abacus, our ongoing commitment is to you as a fellow business owner. Our goal is to help take the stress of your accounting tasks off your shoulders so you can focus on running your business. We know that payroll taxes are complicated, and we hope this blog series has helped you better understand this process. If you haven’t already, make sure you read the other blogs in this series:
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- The Basics of Bermuda Payroll Tax – Part 1: What Is Taxable Remuneration?
- The Basics of Bermuda Payroll Tax – Part 2: Employer Portion + Employee Portion = Payroll Tax
- The Basics of Bermuda Payroll Tax – Part 3: Good News! Payroll Tax Calculators Are Here to Help
- The Basics of Bermuda Payroll Tax – Part 4: Frequently Asked Questions from Business Owners
In this final installment in our payroll tax blog series, we’ll cover more of the questions we’re asked the most often when it comes to calculating and filing payroll taxes accurately.
How does commission affect how I calculate the employee portion of payroll tax?
Commission payments can make payroll tax tricky and Bermuda accounting. The guidance that we received from the Tax Commissioner is that commissions are considered one-off payments, however, as long as that employee stays through the fiscal year, the tax will come out the same whether you consider them one-off payments or recurring.
While the calculation should be the same either way, it does mean the employee portion deductions would be different. With that in mind, if somebody is commission-only and they are going to be paid a commission every week (or every pay period, depending on your payment frequency), we would classify those as recurring payments in the tax calculator tools.
However, if it’s a more sporadic commission – if, for example, you are selling houses and you only get paid commission every time you sell a house and that might be three times a year – we would consider that more of a one-off and record those as one-off payments as they happen.
What if someone is a part-time independent contractor for an organization making the minimum pay band but has a full-time position of employment elsewhere that covers health and social insurance? If this part-time position is just an additional stream of income, is payroll tax still payable on this second stream of income?
If you’ve hired someone and their health and social insurance are being handled elsewhere, then you would receive no exemption for those payments since you aren’t covering this cost. However, payroll tax is still due on all of the income earned. So, if someone has four jobs, isn’t self-employed, and works more than 16 hours monthly (since under 16 hours each month would be an exemption), then all of their income earned from each company is going to be taxable to the company paying them.
The easiest way to think about it is that if you pay an employee to work for you and they don’t fall under the 16-hour provision or the other exemptions we discussed in our first blog in this series, payroll tax will be applicable on their remuneration.
I know that employees who care for seniors are exempt from payroll tax, but what if they’re employed through a company? Is that company exempt?
Yes, the company would receive a payroll tax exemption as well. This would fall under the same exemption as companies who help care for those with a disability. If your company does this type of work, you can apply to the Tax Commissioner for the exemption.
I am a government service provider. Am I correct in understanding that self-employed individuals paying health insurance can deduct the portion of their health insurance they pay from their gross wages?
If you set yourself up as an employee of your own business, it’s easiest to think of it as you wearing two different hats – one as the employer and one as the employee. If you set it up so that your company pays half your health insurance and you pay the other half personally, then there wouldn’t be any sort of tax required. However, if your company is paying the whole health insurance cost for you, then half of that health insurance would be taxable as a benefit provided to you by your company.
How should self-employed people that are seasonal, such as those providing tours that are busy in the summer but see a huge slowdown in the fall and generally zero traffic in the winter, classify their pay in the payroll tax calculators? Is their income recurring or one-off?
This is a great question, because it is about self-employed businesses and also about the fluctuation of pay. If you’re self-employed and you are paid sporadically, from an employee portion calculation, you would use the one-off payment calculation. If your remuneration falls to zero in the winter, or because of COVID, or different scenarios, then you would file a NIL return, since there wouldn’t have been anything paid and therefore there wouldn’t be any tax due.
When I give out annual bonuses, how do I account for this in my payroll taxes – quarterly or do I divide it over the year?
The easiest way to think of it is that taxes are due when the funds are paid. So, if there is a bonus paid to an employee, the tax on that would be due in the quarter that the bonus is paid.
If my business operates mostly online, does that change how my payroll tax is calculated?
If you’re a Bermuda-based business and you’re offering services primarily in Bermuda, the Tax Commissioner would consider those services provided in Bermuda and would expect you to file in the same way that a brick-and-mortar might. For example, most of the services Abacus provides currently are virtual because of changes from the pandemic. But that doesn’t change the nature of the service that we’re providing or the people we’re providing it to. However, there may be some exceptions to this and, if you think you’re in an exceptional circumstance, please contact the Tax Commissioner for their guidance.
Thank you so much for reading our Basics of Bermuda Payroll Tax blog series! We hope you’ve found answers to some of your questions and learned some new, helpful skills throughout these blogs. It’s important to remember that payroll tax bands and other aspects of payroll tax can change from year to year, so if you’re reading this past the fiscal year of April 1st 2022 through March 31st 2023, it’s possible some of this information has been updated. Always defer to the information provided by the Office of the Tax Commissioner on their payroll tax page if you notice any discrepancies.
Abacus is always here to help. If you’d like to learn more about payroll taxes, discuss outsourcing this or other accounting tasks, or if there’s anything else we can do for you, please contact us today.