Payroll Compliance 101: Everything You Need to Know
Did you know that small business owners spend an average of eight hours a month just on payroll processing? With compliance laws changing constantly, it can be tough to keep up. In fact, according to the Society for Human Resource Management, compliance with federal, state, and local laws is the top HR challenge for businesses.
As a small business owner or HR professional, payroll compliance is crucial to avoid costly penalties and legal issues. However, with so many laws and regulations to navigate, it can be overwhelming. That’s why we’ve put together this comprehensive guide to help you understand the basics of payroll compliance.
Federal Payroll Laws:
- Fair Labor Standards Act (FLSA): sets minimum wage, overtime pay, record-keeping, exemption status, and child labor standards for most employees in the private and public sectors.
- Federal Insurance Contributions Act (FICA): requires employers and employees to contribute to Social Security and Medicare.
- Federal Unemployment Tax Act (FUTA): requires employers to pay unemployment taxes, which go into a fund that provides benefits to eligible workers who lose their jobs.
State Payroll Laws:
- Minimum Wage: many states have their own minimum wage laws, which may be higher than the federal minimum wage.
- Overtime: some states have their own overtime laws, which may be more generous than federal law.
- Income Tax Withholding: most states require employers to withhold state income tax from employee paychecks.
- Unemployment Insurance: states have their own unemployment insurance programs, which employers must contribute to.
Local Payroll Laws:
- Paid Sick Leave: some cities and states require employers to provide paid sick leave to employees.
- Fair Workweek: some cities require employers to provide advance notice of work schedules and/or provide additional pay if schedules are changed at the last minute.
- Wage Theft Prevention: some cities require employers to provide notice to employees of their rights to minimum wage and overtime pay.
- Predictive Scheduling: some cities require employers to provide advance notice of schedules for hourly employees.
It’s important to note that these laws can vary widely from state to state and city to city. Employers need to be aware of the specific laws that apply to their business and ensure that they are in compliance. This may involve working with an HR consultant or payroll provider to ensure that payroll processing is accurate and that all necessary taxes and other deductions are being taken out of employee paychecks.
Tips for Ensuring Payroll Compliance:
- Stay up-to-date on changes in payroll laws: Payroll laws are constantly changing, so it’s important to stay informed about new laws or changes to existing ones. Subscribe to newsletters from government agencies, attend webinars or conferences, and stay in touch with industry associations to stay informed.
- Establish a payroll compliance checklist: Create a checklist of all the payroll tasks that need to be completed to ensure compliance. This should include things like verifying employee information, calculating taxes and deductions, and submitting payroll taxes on time.
- Train your payroll staff: Make sure your payroll staff is well-trained on all payroll laws and regulations that apply to your business. Provide regular training sessions and make sure they understand the importance of compliance.
- Use payroll software: Payroll software can help automate payroll processes and ensure compliance with payroll laws. Make sure you choose a software that is regularly updated to reflect changes in payroll laws.
- Perform regular audits: Regularly audit your payroll processes to ensure compliance. This can include reviewing payroll records, verifying employee information, and checking for errors or discrepancies.
- Seek professional help: If you’re not confident in your ability to manage payroll compliance on your own, consider hiring a professional to help. This could include a payroll consultant or a CPA who specializes in payroll.
By following these tips, you can help ensure compliance with payroll laws and avoid costly penalties and fines.
Key Takeaways Summary:
Payroll compliance is important for small business owners and HR professionals to avoid penalties and legal issues.
Federal, state, and local laws impact payroll compliance, and it’s important to be aware of the specific laws that apply to your business.
Staying up-to-date on changes in payroll laws, establishing a payroll compliance checklist, training your payroll staff, using payroll software, and performing regular audits can help ensure compliance.
Seeking professional help, such as a payroll consultant or CPA, can be an option for those who need additional support.
Accurate payroll processing and effective workforce management are key components of compliance.
Payroll compliance can be complex, but it’s essential for the success of your business. By understanding federal, state, and local laws, properly processing payroll, effectively managing your workforce, and engaging your employees, you can ensure compliance and avoid costly penalties. If your company still has payroll questions or concerns visit https://www.highflyerhr.com/contact-us/ today to see how we can make painroll painless!