A Step-By-Step Guide to Ensure Payroll Compliance!
by Ledger Bench LedgerBench is your trusted accounting & bookkeepiPayroll
compliance is more than just ensuring paychecks come out on time. Cutting
checks have become merely the least important job for a professional. These
days ensuring the compliance with employment laws and payroll can mean the
difference between potential legal trouble and smooth payday sailing, tax
audit, or bankruptcy. Compliance is a legal requirement. There is a lot to be
done when your first or new employee joins in. The HR task is to update the
files and sign the contract followed by focus on the payroll. Payroll includes
hiring and firing, benefits, leave dates bonus, employment laws and other
important aspects. It is wise to say that it's directly linked to taxes and tax
accounting.
Payroll
compliance isn’t a rocket science or a scary task. Building good payroll
compliance habits will save your company’s efforts, money and time.
We
suggest the following step-by step guide to ensure payroll compliance that will
keep your employees happy and the tax man off your back.
- Adding
the new employee to your system:
Start
with the basics by adding the new employee to your system. Check all personal
details of the employee, fill the form W-4 which includes the information an
employer needs for tax purposes. Include the correct salary information and tax
codes, bonuses or contractual benefits that must be declared for tax purposes.
Input the correct working hours whether the employee is full time or part time
etc. Check with your employee if you have their correct bank account details.
Lastly, make sure their payment dates are correct as to when they go live on
their new start date!
Also Read
- What
is Statutory Compliance?
- Document
everything:
Make sure
all the employees have all the right paperwork. Documenting is a very easy and
essential task. Use a central repository for all of your documents but also
track your employee’s documentation in your HR software where you can easily
find any changes.
You need
to inculcate this habit by locating every employee’s W-4 form and any other
pertinent document. If you haven’t already added to your HR software, you must
do it right away and then shred the paper. Your payroll software should be able
to classify exempt vs non-exempt employees and contractor’s vs employees.
Now,
calculate and document the total number of hours and the total money you should
spend on payroll every pay period and keep those numbers on hand.
- Secure
Everything:
Payroll
documentation contains sensitive personal identification data such as
addresses, social security numbers and private information regarding work
eligibility whether in a filing cabinet or cloud. There is no need for an IT
person to know a person from sales to have wage garnishments and should not be
able to find any employees bank account number through a quick search in asset
management software.
Bookkeeping
services for small business
All of
payroll data must be stored securely on cloud in encryption and only those
employees who need to interact with payroll administration should have access
to the files. A cloud solution protects your team against fire and flood that
could destroy or carry away a filing cabinet or the external hard drive.
- Oversight:
Regular
oversight is one of the best habits you can build for payroll compliance.
Before submitting payroll checks, managers should double-check hours and
approve or deny inconsistencies from period to period. Manager should also
double- check any garnishments and withhold fringe benefits as well. You must
run the audits and reports in payroll software and check them against your
documented numbers for hours and pay. Set aside a few hours every day period
for oversight on the company's calendar and make the meeting compulsory.
- Schedule:
Payroll
runs on a schedule for sure but your calendar shouldn't just include the days
where payroll is a priority. Oversight meetings must go on your calendar as
well as regularly scheduled financial audits. You need to schedule your tax
reporting. If your accounting or HR department uses project management software
to keep track of large, ongoing projects, make sure major compliance issues get
scheduled in that software too. This tool has workflow capability, which will
automatically send documents off for signing or to notify employees for the
upcoming due dates.
- Watch
the laws:
You need
to keep your eye and ears open for any changes Congress and your local
government makes in relation to income, overtime and compliance. It is good to
contact a tax attorney if you need any clarification. Every US business must
pay attention to the following laws:
- Fair Labor and Standards Act
(FLSA)
- Federal Taxes including
Income and Unemployment (FUTA)
- State and Local Taxes
Also Read
- What is
Accounts Payable?
- Automate:
More and
more you and your team automate the processes, less of the time is consumed and
even less errors are made. Modern payroll software offers automation, thus
saving your HR teams time and manual efforts. Look for the following features
in your payroll software:
- Built-in auditing and
reporting
- Automatic calculation of
employee hours
- Dedicated tax automation
capabilities
- Integrations with time and
attendance apps
- Easy to use- check customer
reviews
- Suitable for your location-
It can be set up to comply with local laws and regulations.
- It must be cloud based so
that you can access from anywhere, anytime.
A good
payroll software stays with you as your business grows so ask for
recommendations from accountants, suppliers or business partners.
Common mistakes business owners make in Payroll
processes:
- Forgetting to report taxes:
It is
mandatory to take out appropriate taxes from your employees paychecks and
report them as well. This is the most common mistake made by business owners-
forgetting tax paperwork. Every business is different, but generally you need
to complete Form 940 and Form 941 as well as W-2s and 1099s for each of the
employee and contractor. If you fail to do so, your business might face a
penalty from the IRS.
- Missing Tax Deadlines:
Missing
filing of taxes on tax deadlines is another common mistake made by the business
owners. As a business you might remember to complete appropriate forms but
neglect to file them on time. Different forms have different filing dates, but
like forms 941, must be submitted quarterly. Forms like 940 and W-2s must be
filed once a year. Missing tax reporting deadlines might result in penalties
from the IRS.
- Misclassifying Contractors:
It is
vital to classify your employees vs. contractors because of the different tax
implications each has. It is illegal to wrongly classify your staff as
independent contractors. Many business owners do that to lessen the tax
responsibility. But over the years, the IRS is paying major attention to this.
If you wrongly classify your workers, you would be liable for heavy taxes,
penalties and interest.
- Miscalculating overtime:
Overtime
is sometimes miscalculated. Employers often forget to include other forms of
compensation such as bonuses, commissions, stipends etc. when calculating rate
for overtime. Some employers also miscalculate when determining hourly rate.
This can become problematic, especially when underpaying your employee. This
can also result in legal actions for underpaying your employees.
- Failing to maintain records:
With so
much paperwork involved with payroll compliance, it can be easy to forget or
lose vital documents. Failing to maintain records and documentation as said
above can be problematic for your business. You need to keep your documents
organised, secured and accessible whenever necessary.
Conclusion:
Payroll
compliance is as easy as building a daily habit. The right software and little
know how will keep our business from drowning in fees and legal troubles.
Whether you are hiring your first employee or the fiftieth, payroll compliance
matters. It will save you time and money.
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Created on Sep 7th 2020 22:35. Viewed 293 times.