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The new year brings a lot of changes, including the introduction of new laws. Find out what your company needs to know about payroll compliance in 2022.
The “payroll compliance checklist” is a list of important payroll laws that will be in effect in 2022. These laws are important to know for those who need to comply with them.
To prevent financial fines, interest costs, litigation, or even being forced to liquidate your firm, you must follow all payroll regulations as an employer. Payroll regulations control how you pay your workers and pay taxes, as well as how you report this data.
Overtime pay regulations, payroll taxes, and quarterly and yearly tax forms are only a few of the topics covered by payroll legislation. To maintain payroll compliance, you must follow both federal and state laws; state laws, which vary depending on your location, seem to trip up some employers more.
Here are the rules and regulations to which we believe it is essential to pay great attention:
1. Payroll Taxes Must Be Calculated Correctly & Paid On-Time
You must deduct the necessary amounts of payroll taxes from employee paychecks and pay them as needed while handling payroll (monthly, quarterly, or annually). There are federal and state payroll taxes to consider, and you’ll need to figure out the exact tax rates to guarantee your calculations are accurate.
You must deduct the following federal taxes from workers’ paychecks: income tax, Social Security, and Medicare (state taxes vary depending on the state).
Employer payroll taxes must also be paid out of your personal bank account. You’ll pay the same amount in Social Security and Medicare taxes (also known as FICA) that you deduct from employee paychecks. Employers are also liable for paying FUTA in addition to FICA (federal unemployment tax).
2. In most states, workers’ compensation insurance is a legal requirement.
The necessity for workers’ compensation insurance is another essential rule that impacts your payroll compliance. Most states require you to acquire workers’ compensation insurance to cover possible expenditures resulting from employee accidents on the job. The state regulates and oversees it, and it is generally financed by private organizations.
There are just a few exceptions to the workers’ compensation mandate, and Texas is the only state where businesses may choose not to get insurance. So, if you’re a new company that’s not based in Texas, don’t miss this step. Many payroll providers allow you to acquire workers’ compensation via one of their partners or through their own in-house solutions.
3. Employers are in charge of dealing with court-ordered garnishments.
It’s possible that you’ll get a court order to deduct money from an employee’s salary to satisfy a debt. This is a severe situation, and you must act promptly or risk being held liable for the cash.
If an employee owes child support, you’ll usually get an income withholding order. Other debts that other parties have been granted in a case may likewise be subject to an earnings withholdings order.
4. Deadlines for filing tax forms must be met.
Employers are required to record the taxes they withheld and paid to the IRS and other taxing authorities so that they may be verified. Some reports, such as the year-end W-2 forms that must be sent out by Jan. 31, must also include total income paid out.
You’ll need to submit 1099 papers if you hire contractors. It’s critical to ensure that your team is appropriately categorised. Make sure you understand the distinctions between W-2 workers and 1099 contractors before proceeding. There are a variety of additional payroll forms that employers may need, some at the start of a job relationship and others on a more frequent basis, such as quarterly.
5. Payroll records must be kept for three to four years on file.
You are in charge of numerous payroll recordkeeping obligations, which may not appear straightforward when considering payroll. Many firms follow the best practice of keeping all payroll documents for at least four years, including paycheck stubs, year-end tax forms, new hire tax forms, time sheets, and so on. You are allowed to store some of them for a minimum of three years under the law.
Employers may use whatever form of timekeeping they desire, but records must be comprehensive, accurate, and unaltered by the employer, with the exception of a supervisor’s signature. Employers are not allowed to change timesheets. Employers may use the example time card format below. Include the entire number of hours worked, as well as meal and rest periods and the employee’s signature.
Although there are no DOL guidelines about how time sheets should be formatted, it’s critical to include enough information so that the employee, supervisor, payroll/accounting, and any outside auditors can understand the record when it’s needed.
6. Some Employees Must Be Paid Overtime & Minimum Wage Is Required
If your workers work overtime, you must pay them more under federal law. In addition, depending on which state you operate in, you must pay minimum wage levels to each employee. There are exclusions for overtime and minimum pay, but you’ll need to learn about them to make sure the employment scenario you’re contemplating is qualified.
- Pay Regulations for Overtime
- Wage Requirements
You’ll need to keep track of exempt and nonexempt staff. When nonexempt employees (typically hourly workers but sometimes salaried employees) work more than 40 hours in a week, they must be paid overtime; exempt employees are not entitled to overtime compensation.
Overtime compensation is calculated at a rate of time and a half (1.5 times their regular hourly rate). If you fail to recognize overtime when it is necessary, you will be in violation of the Federal Labor Standards Act and will be obliged to refund the money, as well as late fines and penalties, at some point—not to mention paying extra taxes on the earnings.
What If I Told You…
Employees earning less than the new wage level, $35,568 per year for a full-time worker, will be eligible for overtime compensation beginning Jan. 1, 2020. The regular weekly income level, which was increased from $455 to $684, is another approach to compute this.
You can’t simply pay workers what they’re worth; the federal government and several states have set a minimum wage that must be met in order to be in compliance with payroll laws. Although the federal minimum wage is $7.25 per hour, several states have higher rates—some as high as $15.00 per hour.
Check out our state guides to payroll for additional information on overtime and minimum wage in your specific state:
State-by-State Payroll Instructions Alabama Alaska Arizona Arkansas California Connecticut Colorado Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire is a state in the United States. New Jersey is a state in the United States. New Mexico is located in the United States. New York is a city in the United States. North Carolina is a state in the United States. North Dakota is a state in North America. Ohio Oklahoma Oregon Pennsylvania Rhode Island is a state in the United States. South Carolina is a state in the United States. South Dakota is located in the United States. Tennessee Vermont, Texas, Utah Virginia Washington In Washington, D.C. West Virginia is a state in the US. Wisconsin Wyoming
7. Employees must be compensated on a timely basis.
When you first start paying workers, you should establish a pay plan that ensures they are paid on a regular basis. The most typical pay periods are weekly, bimonthly, and semimonthly, however some companies pay out monthly. Each state has its own minimum pay frequency standards, so be sure you know what they are in yours.
Companies are not required to pay their workers by direct deposit. Most firms do so because it makes payroll processing quicker and enables workers to obtain their money sooner. Direct deposit is used by 93 percent of workers to collect their salary.
Many states also have laws governing last payments for employees who willingly depart or are fired. Employers in states such as New York and Washington have until the next scheduled payment to settle any outstanding debts, however California mandates that any unpaid wages be paid to workers at the moment of termination.
It’s simple to guarantee that workers are paid appropriately and on time when you use payroll software like Gusto. You may even arrange your payroll to run on autopilot for all of your salaried employees, so you don’t have to worry about it. For 30 days, you may try it for free.
Gusto is a great place to visit.
8. It’s Not Always Legal to Have Multiple Payroll Options
Employers often have the freedom to choose how they want to pay their workers, whether it’s via paper check or direct deposit. However, as the usage of pay cards grows, several states have implemented legislation forcing companies to provide a second payment method in addition to pay cards.
In addition, contrary to popular belief, companies may pay employees in cash. The most crucial thing is to understand how to lawfully pay workers in cash. One of the most significant considerations in avoiding fines and penalties is proper paperwork.
9. Tipped employees must be paid according to certain rules.
You should be aware of tip reporting rules if you work in the restaurant sector and any of your staff earn tips or are members of a tip pool. If you run a tipping pool as part of your company, this is quite handy.
One issue that many foodservice businesses have is determining how to regulate minimum wage in occupations that are also eligible for gratuities. It is a significant problem if you are fresh to this sector. Many states, for example, allow tipped workers to be paid a tipped minimum wage, which is a rate that is lower than the state’s legal minimum wage, with the idea that these employees are paid from the restaurant plus their tip “wages.”
Some states, known as “equal treatment states,” prohibit this practice. These states include Alaska, California, Hawaii, Minnesota, Montana, Nevada, Oregon, and Washington. Other tip pay regulations vary widely from state to state, so familiarize yourself with your state’s legislation.
How to Stay Up-to-Date on Payroll Compliance Laws
The top two burdens on small companies, according to the National Small Business Association (NSBA), are income and payroll taxes. Due to their ever-changing nature, these administrative and financial obligations may be very time-consuming and complicated. As a result, small company owners often find themselves devoting an inordinate amount of time on finishing them.
If you don’t want to hire a payroll provider to help you with these legal obligations, you’ll have to learn how to perform payroll on your own. You’ll also have to keep up with ever changing payroll regulations.
On a yearly basis, we suggest that you complete the following steps:
- Engage the services of an auditor to examine your payroll records, methods, and procedures. You may also perform a payroll audit on your own.
- Subscribe to the Small Business Administration’s e-newsletter (SBA).
- Visit the Department of Labor (DOL) website for important, easy-to-find payroll regulation information on the Fair Labor Standards Act (FLSA) and other payroll-related statutes.
- Although an annual membership is required, check out the Society of Human Resource Management (SHRM), which has a variety of information on payroll compliance rules, including the FLSA. The cost of an annual SHRM membership is $219.
- The American Payroll Association (APA) has a list of useful tools that no small company owner should overlook. We appreciate the Compliance Calendar, for example, since it lists important payroll reporting dates that are hard to come by otherwise. It’s an excellent tool for keeping your staff up to speed on the various changing tax filing requirements and deadlines throughout the year.
Agencies That Regulate Payroll Laws: IRS & DOL
As payroll regulations change, we turn to the Internal Revenue Service (IRS) and the Department of Labor (DOL), which oversee payroll legislation throughout the country. The IRS is mostly responsible for the taxes aspect of payroll compliance. Meanwhile, the Department of Labor (DOL) oversees issues that vary from state to state, including how the Fair Labor Standards Act (FLSA) affects payroll processing.
- Payroll Regulations of the Internal Revenue Service
- Payroll Regulations of the Department of Labor
If you have any payroll-related tax questions, go to the IRS website, which explains everything you need to know about what constitutes taxable income for employees, how to keep proper records, how payroll taxes are affected by company mergers, how to report payroll taxes of a deceased employee, and more.
If you have any queries regarding the FLSA’s ever-expanding scope, go to the Department of Labor’s website, which can assist you manage the complex payroll requirements that vary greatly from state to state.
Firms in Alabama, Arkansas, Florida, and Mississippi, for example, are not obliged to furnish pay stubs to workers, although employers in around 41 other states are obligated to do so.
The FLSA’s influence on payroll law compliance for the ordinary company is explained on the Department of Labor’s website. These payroll categories include anything from state-by-state minimum mandatory (paid) rest intervals and minimum wages to agricultural payroll requirements. The Department of Labor’s minimum wage guide makes it simple for companies to figure out what their pay obligations are to their workers.
Conclusion
Payroll processing and associated compliance standards might be difficult to handle in the long term owing to a plethora of complex and ever-changing payroll legislation. Payroll partners and helpful resources may assist.
Although the IRS and the Department of Labor both have a wealth of resources, they are both strict when it comes to oversights and bad practices; even accidental mistakes may result in costly fines, so it’s critical to remain on top of developments.
Payroll compliance is the process of ensuring that employers and employees are in compliance with all payroll laws. The “payroll compliance meaning” is a term used to describe this process.
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