Payroll compliance is a complex and challenging task for payroll professionals. With ever-changing rules and reporting requirements, following best practices to avoid costly non-compliance fines is essential.
Payroll regulations cover everything from new hire reporting to minimum wage laws and overtime pay. Read on to learn how to ensure compliance and accuracy in payroll processing.
Taxes
Managing payroll taxes can be one of the most complicated and time-consuming tasks in the HR department. Keeping up with state and federal regulations and reporting and tax filing deadlines is critical. Failing to meet these requirements can result in severe penalties for businesses, quickly bankrupting smaller organizations.
Payroll taxes are the taxes employees and employers pay on the salaries, wages, benefits, and deductions they receive each pay period. These taxes are based on laws and regulations at the federal, state, and local levels, which can change at any time. It’s the responsibility of each business to stay on top of these changes and ensure they accurately pay taxes to all appropriate parties, file all required reports, and provide their employees with W-2 and 1099 forms to report their income.
Often, the most severe errors occur during payroll processing, affecting the accuracy of ‘gross-to-net’ calculations and compliance with local employment law. Getting it right starts with the quality of source data that feeds into the payroll engine. A centralized, consistent method for checking source data can eliminate the vast majority of errors that lead to costly mistakes in ‘gross-to-net’ calculation, avoiding penalties and inaccurate payments and records. A manager self-service system allowing centralized checks and comparisons is a great way to achieve this.
Withholdings
Withholdings are an employer’s tax payments from an employee’s paycheck to send to the federal, state, and local government. Those withholdings are determined by the employee’s filing status, allowances, and other factors.
An adequately calculated federal income tax withholding is critical to avoid costly penalties. Whether you use payroll software that calculates this amount using the wage bracket method or the percentage method, it is essential to double-check that it’s accurate. You should also ensure that you withhold the correct amounts for state and local taxes, if applicable.
Another crucial aspect of payroll processing is ensuring that the correct amounts are withheld for company benefits and deductions like health insurance, retirement savings plans, flexible spending accounts, and more. This requires proper tracking and reporting. Additionally, you may be required to withhold additional money for other purposes, such as child support or court-ordered alimony.
Keeping track of these compliance issues can be overwhelming for a business, mainly because rules are constantly changing. To help prevent costly errors, look for a solution that stores all your employee data in a single database, making it easier to access and manage. Other best practices to ensure payroll accuracy are regular internal audits, effective communication, and training.
Keeping Records
Many different best practices and tools can help ensure compliance and accuracy in payroll processing. These include regular auditing, effective communication, employee information management systems, software, training, time and attendance tracking, and reporting tools. These are essential steps to ensure that your company is maximizing the efficiency of its payroll processes and mitigating potential risks.
Payroll regulations are ever-changing, and staying current on any changes affecting your business is essential. One way to do this is to attend payroll conferences, webinars, or seminars. Additionally, it’s a good idea to subscribe to newsletters from government sources or payroll experts. Additionally, it would be best to consider working with a payroll service provider or outsourcing agency that can keep you updated on compliance and payroll processing changes.
It’s also essential to conduct quarterly or annual payroll audits. This will help ensure that all wages are calculated correctly and that all deductions and taxes are appropriately withheld. Having multiple people perform these audits is a good idea, as it will help decrease errors and improve accuracy. Also, it’s a great idea to have a system that allows employees to report any issues with the system so that they can be fixed as soon as possible.
Reporting
As the payroll process evolves to meet the needs of businesses, companies must keep up. This includes staying current on payroll laws and regulations and ensuring systems operate correctly. Streamlining processes, utilizing automation, staying up to date, and performing audits are ways to ensure that payroll systems function correctly and comply with all applicable laws.
In addition to ensuring that the correct information is recorded and deposited, it’s also essential to ensure employees are paid on time. This can be a challenge for businesses that must process multiple payments simultaneously, but a good payroll service provider should have the resources and experience to help with this. They will be able to handle the many aspects of payroll processing, including taxes and deductions.
When looking for a payroll service provider, consider choosing one that uses a unified database. This will mean that the same data is used for employee time tracking and payroll processing, eliminating the need to manually transfer information between systems and reducing the risk of errors. Additionally, look for a provider that uses encrypted servers and conducts regular audits to ensure their security controls meet industry standards. Lastly, they should host their servers in trusted data centers with backup generators to provide continuity of services in a disaster.
