How money moves in our town
Where does your paycheck come from?
Friday comes, and the money lands. It’s easy to think it came from that day’s sales. Usually it didn’t.
This piece explains how it works. It isn't advice.
1. Payday doesn't wait for sales
When the paycheck goes out, the owner is usually paying with money that is already in the bank. That can be:
- money collected from earlier sales,
- the owner's savings, or
- a loan or line of credit from a bank, which is money the owner borrows and pays back later. See What does a bank actually do?.
The timing often runs backward:
- The shirts, seed or parts you helped sell may have been bought and paid for weeks earlier.
- Some customers, like businesses, a school or a contractor, may pay their bills 30 days or more after the work is done.
- Your pay covers last week's work, whether last week was busy or slow.
Think about the restaurant down the street. It has food in the cooler, a cook on the clock and lights on for a Tuesday lunch rush that might not come.
2. What a worker costs beyond the paycheck
On top of your pay, the employer owes some taxes and insurance that you never see on your check. These are real 2026 rates from official sources.
| What | Rate (2026) | Source |
|---|---|---|
| Social Security (employer's matching share) | "6.2% for the employer and 6.2% for the employee." Applies to wages up to $184,500 in 2026 | IRS Topic 751, https://www.irs.gov/taxtopics/tc751 |
| Medicare (employer's matching share) | "1.45% for the employer and 1.45% for the employee." No wage cap | same |
| Federal unemployment tax (FUTA) | "The FUTA tax rate is 6.0%. The tax applies to the first $7,000 you paid to each employee." With the full state credit of up to 5.4%, "the FUTA tax rate after credit is 0.6%." | IRS Topic 759, https://www.irs.gov/taxtopics/tc759 |
| Tennessee unemployment insurance | New employers: "The new employer premium rate for all other industries is 2.7%." Taxable wage base: $7,000 for 2026. Established employers get rates from a chart based on their history | TN Dept. of Labor & Workforce Development, https://lwdsupport.tn.gov/hc/en-us/articles/202843724-How-is-my-premium-rate-determined and https://www.tn.gov/workforce/employers/tax-and-insurance-redirect/unemployment-insurance-tax/ui-tax-rates.html |
| Workers' compensation insurance (pays for injuries on the job) | "Generally, Tennessee employers, not in the construction or coal mining industry, with five (5) or more full or part-time employees are required to carry workers' compensation insurance." Construction employers must cover every employee, even just one. The price depends on the insurer and the type of work, so no rate is given here | TN Dept. of Labor, https://lwdsupport.tn.gov/hc/en-us/articles/204304628 ; https://www.tn.gov/workforce/injuries-at-work/employers/employers/who-must-carry-insurance/construction.html |
Notes:
- The tn.gov rules were read through a search-index copy of the page because tn.gov blocked our direct download. Recheck them before printing.
- On your own pay stub, the employee's 6.2% and 1.45% are taken out. The employer's matching share does not appear on your stub.
Pretend example, using the real rates above. You earn $100 of pretend pay in your first week at a new Tennessee shop.
- Employer's Social Security + Medicare: $100 × 7.65% = $7.65
- FUTA after the credit: $100 × 0.6% = $0.60
- TN unemployment insurance at the new-employer rate: $100 × 2.7% = $2.70
- Workers' comp: depends on the policy (and may not be required at a very small shop)
That comes to about $110.95 plus any workers' comp to put $100 of pay on your check (calculated). The unemployment taxes stop for the year once your pay passes $7,000.
3. So where does the money come from?
From sales. The money comes from what's left of each sale after paying for the item itself, plus the rent, the lights, card fees and everything else.
Puzzle: Follow one day's sales
Goes with Payday week. That puzzle asks what you'd do. This one follows the money. ALL NUMBERS ARE PRETEND.
It's Saturday at a pretend shop on the square.
1. The register rings up $600 in sales.
2. Those items cost the shop $360 to buy from suppliers, three weeks ago. What's left? ______ (answer: $240)
3. One day's share of rent: $50. Lights and water: $15. Card-machine fees: $15. What's left now? ______ ($160)
4. Your pay for the day: 8 hours × $12 = $96, plus the employer's 7.65% Social Security and Medicare ($7.34). What's left? ______ ($56.66)
5. That $56.66 has to cover the owner's own pay, a loan payment, insurance and the next order of stock.
Now the twist: Payday is Friday, the day before this Saturday. The shelves were paid for weeks ago. Which money paid you?
4. Cash flow vs. profit
Profit asks: over a month or a year, did more come in than went out?
Cash flow asks: is there money in the account today, when the bill is due?
A shop can make a profit on paper and still come up short on payday. That happens when customers pay late, a big order of stock just went out the door, or a slow week arrives right before a busy one.
Two research findings:
- JPMorgan Chase Institute, Cash is King: Flows, Balances, and Buffer Days (2016, using 2015 data on 597,000 small businesses): "The median small business holds 27 cash buffer days in reserve," and "The median small restaurant holds 16 cash buffer days in reserve." "Cash buffer days" means how many days of normal bills a business could pay if no money came in. https://www.jpmorganchase.com/institute/all-topics/business-growth-and-entrepreneurship/report-cash-flows-balances-and-buffer-days
- Federal Reserve Banks, 2026 Report on Employer Firms (2025 Small Business Credit Survey, N=6,500 employer firms, a convenience sample):
- Asked about financial challenges in the prior 12 months, firms reported "Paying operating expenses" at 54% and "Uneven cash flow" at 50%.
- The report's note: "Examples presented for 'paying operating expenses' include payroll, rent, and inventory costs."
- https://www.fedsmallbusiness.org/-/media/project/clevelandfedtenant/fsbsite/reports/2026/2026-report-on-employer-firms/2026-report-on-employer-firms.pdf
5. Here in Lincoln County
- Businesses with paid staff paid $389.3 million in total payroll in 2023 (Census County Business Patterns, nominal).
- Of 628 such businesses, 364 had just 1 to 4 people on payroll.
Something to notice: With only a few people on payroll, who covers when sales are slow?
6. What do you notice?
- Next payday, look at your pay stub. What was taken out? What did your boss pay that doesn't show on it?
- When you're at work, what did the shop have to buy before you could sell anything?
- Which days are busy and which are slow? Does your pay change on slow weeks?
- If you do odd jobs like mowing, babysitting or raking: where did the $20 in the neighbor's hand come from before it reached yours?
Noticing only. An owner's money is their business, so this piece doesn't send anyone to ask.