The ABCs of Payroll Compliance

Payroll Compliance Overview

Payroll compliance is a critical part of running a business, governed by complex sets of employment and tax laws. Not only do these laws vary from one region to the next, they also change over time and often impose strict financial penalties or legal repercussions for organizations that don’t fall in line.

Staying on top of the latest legislative updates is crucial for employers of all sizes and industries.

What is Payroll Compliance?

Payroll compliance includes a broad range of regulations governing how businesses manage compensation, payroll taxes, and record-keeping. This includes calculating and withholding tax amounts, submitting reports and payments with different tax authorities, abiding by prescribed minimum wage rates, and correctly calculating overtime pay.

Payroll compliance complexities vary depending on several factors, such as the size and location of the organization, the type of goods or services it provides, and its employee classifications.

Importance of Payroll Compliance

Payroll compliance not only maintains the legal integrity of an organization’s finances but also fosters trust in the workplace by guaranteeing everyone is paid fairly and on time. This demonstrates the organization’s commitment to ethical practices and strengthens its reputation within its industry.

Not adhering to labor laws and payroll tax compliance requirements can incur expensive penalties, fines, lawsuits, and even criminal charges in some states. The negative sentiment and backlash resulting from any of these can further impact employee turnover and recruiting efforts.

Federal and International Requirements

Key legislation includes:

• FICA (Social Security and Medicare taxes)
• FUTA (Federal unemployment taxes)
• FLSA (Labor standards)
• EPA (Equal pay requirements)

State and Local Compliance

• Reciprocal agreements
• State income taxes
• Unemployment insurance
• Paid leave requirements
• PTO standards

Common Compliance Mistakes

With so many different laws and regulations to follow, organizations can accidentally risk non-compliance through:

• Worker misclassification
• Incorrect tax form usage
• Outdated withholding rates
• Overtime calculation errors
• Inaccurate time tracking

Best Practices for Compliance

Keep A Compliance Calendar:
Keep an updated, sharable calendar with all important legal and tax deadlines or due dates, as well as when each pay period begins and ends.

Audit Regularly:
Perform recurring audits to make sure all information and records are accurate and stored properly. Test the payroll process to ensure funds and withholdings go where they’re supposed to when they’re supposed to.

Stay Informed:
Track and research all applicable legislative changes or regulatory updates. Whether it’s a new federal law or a change in a state tax rate, set reminders to verify current guidance and processes are still based on the most up-to-date laws.

Use a Payroll Compliance Checklist:
Create and implement a payroll compliance checklist the entire company can access and review. It should include every tax and compliance-related task, such as calculating withholdings, confirming employee classifications, meeting submission deadlines, updating tax information, etc.

Consult the Experts:
Having extra assistance from a payroll compliance practitioner or specialist can be invaluable. Third parties can sometimes catch nuances or details internal staff miss or don’t know about. This is especially helpful for smaller or middle-sized businesses that don’t have enough resources yet to create a team of internal specialists.

Tesseon Software Solutions

Maintaining strong payroll compliance doesn’t have to be a meticulous ordeal. Tesseon provides comprehensive compliance tools that help organizations:

• Automate tax calculations
• Monitor compliance in real-time
• Maintain automated records
• Stay updated with changing regulations
• Maintain clear audit trails