Compliance, Payroll

Compliance Regulations that Shape How Businesses Manage Payroll

December 14, 2023

Employers need to comply with numerous regulations when hiring and compensating employees. It is crucial to understand and follow these regulations to avoid legal and financial consequences. Working with a payroll company can simplify this process, as they can help ensure that you adhere to these regulations.

Below, we've listed some of the payroll management best practices to understand and follow. These best practices include business payroll laws as well as payroll tax regulations. Here's what you need to know about employee compensation compliance;

1. Calculate Payroll Taxes Correctly, Pay Them On Schedule

It's important to withhold the correct amount of payroll taxes from employee paychecks and pay them regularly. Each state has its own tax rates, and federal taxes must also be paid. As an employer, you'll need to withhold income tax, social security tax, Medicare taxes, and federal unemployment tax.

2. Court-Ordered Garnishments Must Be Managed By Your Business

If you have an employee who must pay taxes through a court-ordered garnishment, you must withhold those funds from your employee's paycheck. You'll receive the order if your employee is behind on certain payments like child support. If you don't withhold the funds from the employee's paycheck, you may be required to pay the debt yourself.

3. Most States Require Workers Compensation Insurance

If you have employees on your payroll, it's highly likely that your state law will require you to purchase workers' compensation insurance. Although the state mandates this insurance, it's usually provided by private insurers. Only two states, Texas and South Dakota, allow employers to opt out of workers' compensation insurance.

4. Monitor Tax Deadlines

You must report taxes that were withheld and paid to the IRS and state agencies. An example of this is the W-2 forms that are sent to employees during tax season. These forms are due to be mailed out by January 31 each year. If you are also paying independent contractors, you'll be required to send them a 1099 form.

5. Adhere to Minimum Wage, Overtime and Tipped Employee Requirements

The federal government has established minimum wage requirements, and many states have set minimum requirements higher than the federal minimum wage. In addition, employees who work more than forty hours per week may be required to be paid the usual wage plus 50% (known as “time and a half”).

Some types of workers are exempt from minimum wage, and it's important for you to know what those types of employees are. In addition, many states have a category of workers called "tipped employees." These are employees who make a certain amount of money through tips regularly. Tipped employees do not have to be paid the usual minimum wage, so it's important to know if your state has a tipped employee law.

6. Keep Payroll Records for Four Years

As an employer, you'll be responsible for keeping your own payroll records for four years. This includes everything from year-end tax forms to time sheets and paycheck stubs. Some states allow employers only to keep these documents for three years, but you'll need to know your specific state requirements before you start shredding documents. Remember to dispose of documents securely if they contain private information.

7. Pay Employees On time

Set up a regular schedule to pay your employees. Many states have requirements about the minimum number of times an employee must be paid monthly. If you're sending an employee a final paycheck, follow your state laws to ensure that the final paycheck is sent to the employee on time.

Following Payroll Laws Can Be Complicated - Get Help!

Navigate the complexities of payroll compliance with Payday Payroll. We're here to help you understand and follow your state payroll laws. Contact us to ensure your business is up-to-date and fully compliant with all payroll regulations.


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