A payroll compliance checklist is a helpful tool for ensuring that your organization is following all the necessary rules and regulations when it comes to paying employees and managing payroll. Human Resources is typically responsible for ensuring payroll compliance throughout the year and prior to meeting employer tax deadlines. It is important for everyone to be on the same page.
A payroll compliance ensures that a company is following all federal, state, and local regulations. Companies that do not comply with state and federal regulation can find themselves paying harsh penalties, including:
- Criminal liability
- Expensive fines
- Jail time
- Negative financial and reputational impacts on a business
In this blog we are going to outline a basic payroll compliance checklist. Yours may be slightly different depending on the type of business you have. There may also be different regulations depending on the states in which you employ our team.
What Roll do HR Professionals Play in Payroll Compliance?
HR professionals play a crucial role in ensuring payroll compliance within an organization. Payroll compliance involves adhering to various laws and regulations related to employee compensation and benefits. In fact, HR professionals must work in alignment with payroll to ensure proper employee documentation. From onboarding a new employee, until they leave the company, HR will be responsible for ensuring payroll compliance.
Here is an Outline of What HR Professionals Must do for Payroll Compliance:
- Collect and maintain accurate employee records, including personal details, tax information, and banking details.
- Verify the eligibility of employees to work in your country.
- Proper classification of employees as exempt or non-exempt.
- Calculate and withhold the correct amount of income tax and social security contributions.
- Make timely deposits to tax authorities.
- File payroll tax returns as required.
- Knowledge of tax regulations at local, state, and federal levels is essential. HR professionals should ensure accurate withholding of income tax, Social Security, Medicare, and other applicable taxes.
Minimum Wage Compliance:
- Ensure that all employees are paid at least the minimum wage required by law. In many cases, this is calculated after non-mandatory deductions. Minimum wage differs from state to state. To ensure you are up to date with current requirements please visit the Department of Labor Website HERE.
- Calculate and pay overtime for eligible employees as per labor laws. Like the minimum wage compliance laws, overtime pay must comply with the Fair Labor Standards Act (FLSA).
- In August of 2023 The Notice of Proposed Rulemaking (NPRM) proposed updating and revising the FLSA by implementing “the exemption from minimum wage and overtime pay requirements for executive, administrative, and professional employees. Proposed revisions include increasing the standard salary level and the highly compensated employee total annual compensation threshold, as well as providing an automatic updating mechanism that would allow for the timely and efficient updating of all the thresholds to reflect current earnings data.”
- Maintain accurate payroll records for a specified period, typically several years.
- Payroll records are required to be retained for 3 years.
- Provide detailed pay stubs to employees with each paycheck, showing earnings, deductions, and other relevant information. Records from which the payroll was calculated (timecards) are required to be retained for 2 years.
Compliance with Labor Laws:
- Stay up to date with federal, state, and local labor laws.
- Comply with regulations on breaks, meal periods, and other working conditions.
- Ensure that employees are classified correctly as exempt or non-exempt for overtime purposes.
- There are only certain classifications of jobs that qualify for exempt status. See: Handy Reference Guide to the Fair Labor Standards Act | U.S. Department of Labor (dol.gov) (section on exemptions). This is almost always confusing for small business owners and they wind up using exempt and salary interchangeably, which is not the case.
- Nonexempt employees are those who are eligible for minimum wage and overtime pay calculated at 1.5 times their hourly rate of pay.
Benefits and Deductions:
- Administer employee benefits and deductions accurately and in compliance with the law.
- Adhere to laws regarding the frequency of payroll payments.
Terminations and Final Paychecks:
- Comply with regulations related to terminating employees and issuing their final paychecks.
- Keep written policies and procedures for payroll processes.
- Other Records must be retained for the following periods:
- Labor Unions which are "referral unions" must retain all membership and referral records (including applications for same) for a period of one year from the date of making the record.
- Apprenticeship Committees that control apprenticeship programs must retain all apprenticeship records, including, but not necessarily limited to, requests for reasonable accommodation, test papers completed by applicants, and records of interviews, for a period of two years from the date of making of the record.
- Submit any required reports, such as W-2s, 1099s, IRS form 940 and 941 tax forms, accurately and on time.
- Pay attention to any requirement by your state and local municipalities too.
- Compliance often involves reporting new hires to government agencies within a specified period. HR professionals should be aware of and fulfill these reporting requirements.
Audits and Reviews:
- Regularly audit and review your payroll processes to ensure compliance. This is often easier said than done. If your small business does not have a resolute expert on your state and federal employment laws, hire ClarityHR to help. We live and breathe compliance and will always know when changes will affect your small business.
- Train staff responsible for payroll to understand and implement compliance requirements.
- That means your employee handbook needs to be well versed for new and existing employees to clearly understand how and when they are getting their paychecks.
Do NOT Google Payroll Compliance!
Payroll compliance is not something you can leave to chance. It is essential to consult with local labor and tax authorities, or a legal or HR professional, to ensure that your organization is fully compliant with all applicable laws and regulations. It is also essential that your HR staff regularly monitor the state and federal changes to payroll compliance.
How Can ClarityHR Help?
Staying abreast of legal changes, mindfulness, and effective communication with employees, management, and external agencies are key attributes for HR professionals to ensure payroll compliance.
ClarityHR is here to help with your payroll compliance. We can audit your existing checklist to make sure that it is up to current compliance for your team. If you do not currently have a payroll compliance checklist, we can also help you develop one to make sure that you and your team are crossing every ‘T” and dotting every “I” in the payroll compliance world.
Contact us today to get started.