Payroll Compliance: What to Know When Managing Employee Payments
APR 11, 2023
Paying your staff is an essential part of your job as an employer, but there’s more to it than just signing a few checks and dropping them in the mail or putting them on your employees’ desks. The federal government has regulations on payroll, as do state governments and sometimes even local ones. As an employer, it’s vital to ensure you’re complying with all applicable payroll regulations, or your company could find itself in legal trouble.
To ensure payroll compliance in your business, it’s useful to understand the basics of payroll. Your business needs to perform its payroll process at the end of every pay period. Before you start running payroll, you should get together some important information and do some prep work. This includes getting an employer ID number from the IRS, establishing your state and/or local tax IDs, collecting your employees’ tax and financial information, including their W-4s, and creating a payroll schedule with tax payment dates.
Once you’ve done all this, you’re ready to start running payroll. Many companies hire an accountant or payroll manager to handle payroll in-house. This gives you direct control over your payroll but can also be expensive since you have to hire a full-time employee for the job. If you choose to handle the payroll personally, these are the basic steps to the process:
- Calculate each employee’s gross pay, i.e., the number of hours they’ve worked in each pay period by their hourly wage. Hours worked past 40 each work week are considered overtime and non-exempt employees are paid time-and-a-half for it. Note: Salaried employees are paid a set amount regardless of hours worked.
- Determine each employee’s deductions, including federal/state/local taxes, social security, Medicare, 401(k) contributions, Workers’ Compensation, and other benefits.
- Calculate each employee’s net pay, i.e., their gross pay minus their deductions.
- Issue each employee their net pay, via written check, direct deposit, prepaid card, mobile wallet, or cash, and issue the employee a paper or electronic stub which contains the details of gross to net pay.
- Keep comprehensive records for each payroll transaction.
- Remember ongoing payroll considerations, such as quarterly business taxes, annual business taxes, and new hires.
Know the Rules
Ensuring payroll compliance requires you to know what regulations apply to your business. While some states have different payroll regulations, and some local governments have their own payroll regulations, there are some general requirements for the majority of businesses.
As an employer, you must ensure all payroll taxes are calculated correctly and paid on time. Determine if your state requires Workers’ Compensation and if so, make sure to provide it to your staff. It’s also your responsibility as an employer to manage any court-ordered wage garnishments. You must file tax forms by their deadlines, including W-2s, which must be mailed out by Jan. 31 each year, and 1099s, which must be sent to any contractors you utilize.
Employers are required by law to ensure payroll reporting compliance and maintain payroll records for three to four years. These records include pay stubs, year-end tax forms, new hire forms, and time sheets. You must also provide your employees with minimum wage, while following any regulations that apply to your business regarding tipped employees. Non-exempt employees must be paid the appropriate overtime. Finally, you must determine if your state requires you to provide employees with multiple payroll options.
Affordable Expert Service
Compliance with payroll regulations isn’t something you can afford to take lightly. Failure to comply can result in a number of consequences, including penalties, interest fees, and lawsuits. Severe violations can even result in being forced to close your business. With payroll and tax laws being complex, variable between states, and subject to change, getting a payroll expert to handle it is a smart choice. However, you may not be able to afford to hire an in-house accountant, but there’s an alternative.
Contracting a third-party payroll service provides you with expert payroll management without the cost of another full-time employee. These services process payroll for multiple small businesses and can afford to provide your business with expert service at a lower cost. They also can provide additional business solutions beyond payroll, giving added value to their service.
Ensure Legal Compliance with Payroll Vault
We at Payroll Vault are dedicated to providing businesspeople like you with the service of a top-quality payroll company. Our payroll service franchise is made up of committed payroll experts who know the importance of payroll compliance. We provide payroll solutions, as well as HR solutions, background checks, and more with our boutique-style service approach. Contact Payroll Vault today or visit your nearest Payroll Vault location and learn more about what we can do for your business!