The Beginners Guide to Payroll Compliance


Once an employee works more than 40 hours in a workweek, you must begin paying overtime wages. You cannot move the workweek to avoid paying the overtime premium. To calculate federal income tax, you need information from an employee’s Form W-4and the income tax withholding tables. The federal government uses the money collected from federal income tax to fund government programs, such as defense, education, and health care. From payroll taxes, to quarterly estimated taxes, and self-employment taxes, there are multiple taxes businesses need to file and corresponding deadlines to meet.

  • SUTA, or the State Unemployment Tax Act, refers to the taxes paid to fund state unemployment benefits.
  • Again, payroll audits provide assurance that correct contributions have been made.
  • State and federal minimum wage laws must also be followed to maintain compliance in your business.
  • It’s important to pay your nonexempt employees correctly for any overtime they work.
  • The term “Payroll Audits” simply became the popular shorthand for employer compliance reporting.
  • However, employers in credit reduction states will receive a smaller tax credit, therefore increasing their FUTA tax rate.

After all, the livelihood of employees and their families depends greatly on receiving secure, accurate and timely payment for their work. Some providers outsource their local duties to third parties, which creates a frustrating experience for your employees and exposes your company to new risks. If you want to hire abroad, make sure you only work with an owned-entity global payroll provider. The Department of Labor’s website lays out how the FLSA impacts payroll law compliance for the average employer.

Payroll Compliance in 2023: What You Need to Know

This severity in managing the What Is Payroll Compliance? in the payroll compliance may vary across countries as some states and cities make global payroll more complex and challenging. Nonetheless, every country agrees that in order for a company to ensure global compliance, accurate management of payroll is necessary and essential. The Federal Unemployment Tax Act or FUTA, refers to the taxes paid to fund federal unemployment benefits. Unlike compliance with FICA, FUTA taxes are paid only by employers.

How you identify that hire during the onboarding process is critical. And when you factor in employer contributions, that number jumps to $58,000. If you have a Flexible Spending Account set up with your employees, there are limits to the amount of wages that can be deducted for it. We’ve only just begun to dive into all that is payroll and compliance, so if your head is already spinning, there’s good news.

Employee Classification Rules

Keep in mind the FLSA law also exempts some employees from overtime pay. This includes professional, administrative, and executive employees that meet specific criteria, certain small newspapers’ employees, farmworkers, seasonal, recreational, or amusement businesses, and so on. FICA taxes are crucial for payroll tax compliance since they’re required at the federal level. They comprise Medicare and Social Security taxes, each of which is to be withheld from your employees’ paychecks. We can agree that neither employee nor employer want to see an accident happen.

What is the best definition of payroll?

In simple terms, payroll definition can be written as the process of paying employees. Its procedure is to create a list of paid employees, calculate their working hours, estimate their pay, give their salary on time, and record the expense of payroll.

While the confusion is often understandable, these errors can attract significant penalties. Employers should definitely try to ensure the accuracy of their employee data and payroll information from the very beginning. However, to reinforce the accuracy, organizations should also schedule internal audits periodically such as biannually or even quarterly. By auditing the payroll database regularly, you can reconfirm the classifications and other details of your employees. If you are using payroll software, check if it offers audit trails.

What is payroll processing?

To make it easy to stay on top of trending business topics and access up-to-date resources and support, we provide all the materials you need in one place. Dedicated to simplifying your business life, VensureHR works with you to design business solutions that make sense for your company. Our cost – effective, customized options are scalable too – we’re always ready to grow with you. However, if your FUTA tax liability is $500 or less during a quarter, you don’t have to deposit the tax. Once your liability reaches more than $500, you must deposit the tax by the quarterly deadline.

  • Businesses must gather and file necessary information to the IRS and send copies of forms to employees by certain deadlines.
  • Under the Minimum Wages Act, both the Central and State Governments may notify the scheduled employments and fix/revise minimum wage rates for these scheduled employments.
  • Nonexempt employees must be paid overtime when they work over 40 hours during a week ; exempt employees are not entitled to overtime pay.
  • However, this can be a major challenge for HR departments with new people joining and leaving companies on a daily basis.
  • With so much confusion about who’s classified as what, it’s easy to see how slip-ups can happen.
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