Question

payroll practitioners must be compliant with

Answer 1

Answer

Payroll compliance is all about understanding and following the laws that affect payroll—including how people are hired, fired, classified, and compensated. Businesses need to know the rules and follow them—or they’ll get fined.

In fact, many businesses all over the world end up paying non-compliance fines every year, because they failed to adhere to payroll legislation.

Payroll compliance can be very complex and is constantly evolving. It impacts many aspects of payroll operations, including:

• Recruitment
• Layoffs
• Salary and special incentives
• Sick leave
• Holidays
• Employee insurance
• Pensions
• Employee records and personal information
• Taxes

All employers must follow payroll compliance legislation. While it might seem like a burden, it’s extremely important. Why is payroll compliance legislation important? It makes sure employees are paid and treated fairly. And, legislation ensures that governments receive the funding they need for certain programs.

Below are payroll compliance laws you must follow.

1) FLSA: The Fair Labor Standards Act (FLSA) regulates minimum wage, child labor, overtime laws, and recordkeeping.

2) Economic Realities Test:The economic realities test isn’t really a law so much as it is a guide. It helps you determine if the people who work for you are independent contractors or employees. Employees have certain rights that independent contractors don’t have, such as overtime wages.

3) Taxes: Federal legislation requires you hold several types of taxes from employee wages.

4) FICA taxes: The Federal Insurance Contributions Act (FICA) created federal programs for old-age, survivors, disability, and hospital insurance. These programs are funded by Social Security and Medicare taxes, sometimes referred to together as FICA taxes.

FICA taxes have two parts: the employee withholding and the employer contribution. You will withhold part of Social Security and Medicare taxes from employee wages. And, you will contribute an equal part to meet full payroll tax compliance.

5) Federal Income Tax: You withhold federal income tax from employee wages. The federal government uses the money collected from federal income tax to fund government programs, such as defense, education, and health care.

Federal income tax withholding is different for every employee. To calculate federal income tax, you need information from an employee’s Form W-4 and the income tax withholding tables.

6) FUTA Tax:

The Federal Unemployment Tax Act imposes a tax on employers. FUTA tax funds the federal government’s oversight of state unemployment programs.

Many employers receive a FUTA tax credit, which reduces their tax rate. However, employers in credit reduction states will receive a smaller tax credit, therefore increasing their FUTA tax rate.

7) Other federal laws: Numerous other federal laws affect your payroll reporting compliance.

For example, there’s the Equal Pay Act, which requires you to pay men and women equal wages for equal work at the same establishment. And, there’s the Consumer Credit Protection Act (CCPA), which prohibits you from firing an employee because you must garnish wages from their pay. The CCPA also limits how much you can garnish from employee wages.

8) State Laws:

On top of all the federal laws, each state has its own laws, too. Your state likely has laws on pay stubs, acceptable ways to pay employees, state unemployment insurance, workers’ compensation, new hiring reporting, state income tax, and more. You must also follow these payroll compliance requirements.

Be sure to check out your state payroll and labor laws to remain compliant.