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Payroll Compliance Checklist: Your Guide To Not Getting Sued

July 16, 2019 - minute read

Payroll Compliance ChecklistThere's no shortage of struggles when it comes to payroll. For most employers, it falls on them to withhold, deposit, report, and pay federal employment taxes for their employees correctly. But without guidance, you run the risk of missing critical steps. 

Failing to comply with federal payroll requirements can result in harsh penalties including criminal liability, expensive fines, and even jail time. Penalties are time-sensitive, often accumulating increased fees as time goes on. In short, non-compliance is a non-option. 

It isn't easy. Payroll tax filing can be a challenge when trying to keep up with ever-changing tax legislation and complex employee situations. Many organizations operating across the U.S. pay their employees accurately and on time, yet still find it difficult to be consistently compliant. 

Perhaps it's because there are so many components to manage- such as employee records, compensation, wages, bonuses and deductions. Taxes and benefits need to be properly deducted and paid, wages must meet minimum requirements, and retirement funds must be placed into the proper accounts. All these steps need to occur within the complicated framework of local, state and federal tax and regulatory requirements. 

For more insight into common payroll mistakes and how to avoid them, check out our fast guide on navigating payroll compliance. In the meantime, let's explore some compliance requirements. 

Payroll Reporting & Record-keeping Requirements for Employers

Here are the essential reporting and record-keeping requirements to include in your onboarding and ongoing payroll management: 

  • Records for the Federal Labor Standards Act (FLSA): The FLSA requires employers to track and record payroll and employee records for at least 3 years.  There are variations on the time and requirements for each state as well, so make sure to identify additional details based on the state(s) in which your workforce is distributed. 
  • SSN Verification: There are two options via Internet that you can verify employee names and SSNs. You can verify up to 10 names and SSNs (per screen) online with immediate results. (This is a great option for new hires.) Additionally, you can upload overnight files up to 250,000 names and SSNs as well. 
  • E-Verify – employment verification: E-verify is a web-based system that allows employers to confirm whether or not an employee is able to work in the U.S. This verifies employees' identities and employment eligibility by electronically matching information provided by employees on an I-9 Form with federal records. 
  • New Hire Reporting: Employers are required to report all new hires to their state within 20 calendar days after hiring or by the first regularly scheduled payroll following the date of hire. This applies to rehires as well. Federal law does not require employers to include independent contractors, but many states do.  If you have never reported a new hire before, report all employees you have hired within the last 180 days as a first step. 
  • Employee Forms – As previously mentioned, certain forms will become part of your workforce management compliance. These directly affect payroll, so it’s critical that these are among the first onboarding documents you receive and keep up with as you pay and file taxes on behalf of your workforce. These include: W4 forms, I-9 forms, and state-specific forms. 

Basics of Payroll Tax Compliance

All employers must calculate and submit federal income taxes (FIT) and withholdings correctly to avoid government fees or getting sued by members of their workforce. The Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) have both evolved a great deal as part of this process. Paying taxes into these programs funds Social Security, Medicare, unemployment benefits, and other important programs. As changes continue to unfold, here’s a short summary of what to expect with each:

  • FIT
  • Last year, a tax reform was proposed to reduce income tax rates and increase the standard deduction for taxpayers. That means the 2018 tax reform will be applied to this year's taxes!
  • Possible legislation to replace the Affordable Care Act’s 40% excise tax on high-value health plans, scheduled to take effect in January 2020, with a “cap” on the tax exclusion for employer-sponsored benefits. If the “cap” becomes law, payroll systems would need to be modified.
  • FICA
    • Possible legislation could repeal 0.9% additional Medicare tax the ACA imposes on taxpayers that earn more than $200,000 a year.
    • It is expected that the Trump Administration and Congress will at some point turn their attention to strengthening the Social Security system, which could include raising the FICA tax rate or increasing the taxable wage base.
  • FUTA
    • A Trump Administration proposal to establish a nationwide paid leave program for new parents could potentially impact FUTA. The parental leave initiative, which would entitle new parents up to six weeks of paid leave, would be financed through the existing state unemployment insurance (UI) system. If the proposal were to become law, some states likely would need to raise UI taxes to finance it.

EPAY's Payroll & Tax Management

EPAY's complete payroll and tax processing solution accommodates multiple FEINs, states, and localities while processing your garnishments, year-end taxes, new hire reporting, and free pay card programs with ease. Our flexible pay rules, compliance safe guards, and mix-and-match time collection options make us the most customizable provider for the hourly workforce. Want to witness the solution servicing more than 150,000 work sites for yourself? Take a two minute tour

Filed Under: Compliance Payroll & Tax