Small Businesses Expenses in California

Part
01
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Part
01

Small Businesses Expenses in California: Part 1

OVERVIEW

We researched small business expenses in California concentrating on accounting and payroll administration. We found that expenses vary depending on several factors–the type of industry, the location of business and structure of the business (if the business is structured to outsource these services) and government regulation. The minimum wage in California is $10.50/hour but people who work accounting and payroll management don’t get paid minimum wage. According to Glassdoor, an Accounting Manager can earn between 43k and 88k/year depending on years of experience, industry, and location of the small business. These salaries are significantly higher in San Francisco, San Jose, and Oakland. For this reason, small businesses structure their enterprise to outsource accounting and payroll services for as low as $25$350 per month depending on the number of staff.

Please find below a dive into this request.

ACCOUNTING MANAGERS

The cost of hiring an accounting manager varies depending on several factors. One of the biggest factors is the location of the business. Hires in San Francisco, San Jose and Oakland are significantly higher paid than other areas. For example, an accounting officer in San Diego, California earns $88,871 on the average while someone holding the same position in San Francisco would earn $109,884/year. The average in Riverside is $81,821
This is why small businesses outsource their accounting needs to specialized firms. These firms charge between as low as $250/month to $1,700/ month for rendering accounting services. Statistics show 54% of small businesses in California spend below $5,000 in paying for outsourced accounting services. Compared to how much they would spend on hiring an employee, this is a less expensive route. Even if they could get a $10/hour hire for accounting services, it will still cost the business up to $4,000 in training and recruitment costs.
 
PAYROLL ADMINISTRATION
Small businesses are also choosing to outsource payroll management functions. It costs as low as $31 for some online payroll services. But while payroll services may cost $25 to $200/ month, the cost at the end of the year is higher. It costs as much as $50/employee for year-end reporting.  Yet, compared to the cost of hiring a Payroll Administrator, outsourcing makes economic sense. The average pay of a Payroll Specialist in California is $36,412/year. In San Jose, it is $47,433/year.
 
 
PREVAILING WAGES ACROSS INDUSTRY SPECTRUMS
The industry in which the small business operates will also play a role in determining the cost of the hire. Low-cost industries include accommodation, waste management, and arts and recreation. Industries that attract higher costs are trade, manufacturing, and publishing. For example, while the average cost of hiring a payroll specialist in California is $36,412/year, hiring one for the automotive industry drops by almost $3,000 to about $33,000/year.

CONCLUSION

In conclusion, we found that the average cost of hiring an Accounting Manager in California is about $64,000/year while the average cost of hiring a Payroll Specialist is about $36,000/year. The costs are higher in San Jose, San Francisco, and Oakland. Small businesses often opt to outsource these services. They can pay as low as $25-$350/month for accounting and payroll management depending on the number of staff they have. We also learned that business operating in waste management, arts and recreation pay less for these services.
Part
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Part
02

Small Businesses Expenses in California: Part 2

Through our research we were able to find the average healthcare, startup, and tax expenses for a small business in California. Please note, though, that healthcare data was only available for small businesses averaging 5 employees. For healthcare, we found that the average price per month was between $314 and $1,570 depending on coverage type. Initial expenses for a small business added up to approximately $240 for a partnership and $345 for an LLC. Regarding taxes, the incurred expenses are an $800 franchise tax, an 8.84% corporate tax rate, and a 6.65% alternative minimum tax.

Below we will discuss our findings in detail.

Healthcare

There is lack of healthcare data for small businesses averaging 10 to 15 employees. The following study indicated the average spending for a 5-person business, however. We believe this data will aid as a point of reference for small businesses in general.

While small businesses (<50 employees) are not required to offer their employees healthcare insurance, 50% do provide it for moral reasons or for a competitive edge. According to a study from eHealth regarding insurance costs for companies covered through eHealth, the average size of a small business in California was 5 people in 2016. For small businesses they found that the average group monthly premium was $1,570, whereas the average expense for an individually-purchased plan was $330. Alternatively, if the employer were to purchase a premium per covered life the expense would be $314 per person.

Legal expenses

The California Articles of incorporation identify the following expenses when registering a small business as an LLC or partnership:

• Filing fees — $100
• Handling Fees — $15
• Initial report detailing information about your company — $25
• Service Fees — $75
• Annual report — $25

Total = $240 (partnership)

Forming an LLC incurs the additional expenses of a CA LLC fee ($85) paid to the Secretary of State, and a statement of information document fee ($20).

Total = $345 (LLC)

Additionally, a small business will be charged a fee between $50 — $100 to obtain its license, depending on jurisdiction.

taxes

Taxes are notoriously high in the state of California. It is one of the few states that requires small businesses (registered as LLC's or S corporations) to pay both business and personal taxes. Most businesses in California are subject to one or all three of the following income taxes: the franchise tax, corporate tax, and alternative minimum tax.
If an LLC selects to be viewed as a corporation it will be subject to both the corporate and alternative minimum taxes. If all three taxes apply to a small business, it will pay the following rates:

• Franchise tax (if LLC's gross income < $250,000) — $800
• Franchise tax (if LLP or LP) — $800 minimum + Owners' personal income tax
• Corporate tax — 8.84%
• Alternative minimum tax — 6.65%

Conclusion

Healthcare expenses for small businesses with 10 to 15 employees were not available pre-compiled. We were able to find the average healthcare expenses for small businesses averaging 5 employees. Though this is not a direct estimate for a business with 10 to 15 employees, it is indicative of spending done by small groups. Also, we identified the initial fees that LLC's and LLP's pay in the state of California. Finally, we found the taxes LLC's and LLP's are subjected to in the state of California, though the specific taxes applicable vary by company.
Sources
Sources