Did you know that 47 states have laws that address a number of aspects of employment, including minimum wage, exemptions, withholdings, and rest breaks? Six states have laws on the books that address wage theft.
Payroll compliance impacts all companies that have employees, whether you have one or over 1000. There are potentially large penalties and fines if your business is found to violate any of the laws.
How can you be sure that your company complies with a long list of laws?
Keep reading to find out.
1. Know State and Federal Payroll Regulations
There are a number of agencies that oversee payroll at the federal and state level. You have the labor departments, which enforce employee rights.
You also have the IRS, which ensures your business complies with tax regulations. The most important thing that you need to know about is payroll taxes. Close to 40% of small businesses pay penalties that average $845 because they didn’t know the law.
Your business doesn’t need to be in the same boat. You should appoint someone within your organization to keep up with the changing laws to stay within compliance.
2. Maintain Payroll Records
The best defense you have against audits, fines, and penalties is to keep good payroll records. Federal labor laws say that you need to maintain payroll records for at least three years. You need to show the amount the employee got paid, the pay period, and how the paycheck amount was determined.
There are also requirements specific to your state, which you need to know. You don’t want to be caught off guard when it comes to payroll records.
An employee could dispute a paycheck and if you can’t find the records, you could face fines and penalties. You should look into a payroll processing company that can help you process payroll efficiently and keep organized records.
3. Classify Workers Properly
Businesses frequently get caught up in two types of employee classification.
The first is the difference between independent contractors and employees. This is a highly scrutinized area because some companies are trying to avoid paying payroll taxes by misclassifying employees.
Do you control how and when work gets done at your business? There’s a good chance you have employees and not contractors.
The second is knowing the difference between exempt and non-exempt employees. This determines which employees are covered by the Fair Labor Standards Act and which ones are exempt from the polities.
Many automatically think that salaried employees are exempt, while hourly workers are non-exempt. This is a big mistake. There are other distinctions that you should know about.
Payroll Compliance Is a Must for All Businesses
You can’t claim ignorance when it comes to payroll compliance. You need to take responsibility and learn the laws that apply to your business.
You should make sure that you classify your workers properly and maintain payroll records. It can be time-consuming to figure all of this out, and you may want to consider hiring a payroll service provider to handle the work for you.
Need more tips to help you run your business? Visit the Business section for more helpful insights.