Legal Complexity Surrounding Payroll Has Increased Significantly

Key Takeaways:
  • Payroll compliance requires accurate wage calculations, timely tax withholdings and adherence to federal, state and local laws to avoid costly penalties.
  • The complexity of payroll regulations, especially with remote workers and varying municipal rules, makes compliance increasingly difficult for in-house teams.
  • Outsourcing payroll can reduce risk by leveraging providers who stay current on legal changes, manage classification issues and ensure proper benefit reporting.
  • In the event of a wage and hour audit, outsourced payroll providers can supply documentation and may assume responsibility for penalties if errors were theirs.

 

Payroll departments have many targets to hit when running a company’s weekly or biweekly payroll. They must make sure all employees are paid the correct wage and salary rates, tax withholdings are accurate and employee benefit withholdings are made correctly and deposited to the benefit providers in a timely manner, among other tasks.  

One of the most important factors is ensuring the company remains in payroll tax compliance with a host of laws and regulations at the federal, state and local levels, including: 

  • Tax withholdings must be correctly calculated, the related tax forms filed and the payments deposited to the appropriate agencies on or before legal deadlines. Failure to meet a deadline can result in hefty financial penalties. 
  • Paid sick leave must be tracked for each employee, and disability insurance contributions must be made to the state. 

In some cases, minimum wage rates vary not only by state, but by cities, so municipal-level wage rates and overtime rules must be tracked for each employee. With increasingly more companies hiring remote workers who live in distant cities or even other states, understanding the payroll laws and regulations of those jurisdictions is essential. 

The growth of regulations and legal complexity surrounding payroll has increased significantly over the years, making compliance a more urgent concern for companies of all sizes. 

Outsourcing Ensures Compliance 

Outsourcing the payroll function can help ensure a company remains in compliance, as well as streamline the overall payroll process. Outsourced providers are trained in compliance with federal, state and local laws and regulations, and they constantly monitor changes that affect all companies. Moreover, they can advise you and manage complex payroll issues, such as: 

  • Overtime pay, including blended overtime for certain employees, such as those who are paid on commission. 
  • Employee classification compliance, an area where many companies run afoul of IRS and state laws. You may want to pay a worker as a Form 1099 contractor, but unless your relationship with that worker passes certain tests, you must pay them as a W-2 employee. 

An outsourced payroll provider will also advise a company on how to properly tax and report benefits and deductions. If your company offers health insurance or life insurance, the payroll provider will ensure you are reporting and taxing them correctly, and will also help to ensure your employees’ retirement plan contributions do not exceed legal limits. 

What if There’s an Audit? 

In the unlikely event that your company becomes the subject of a payroll-related audit – often termed a “wage and hour audit” – an outsourced payroll provider will assist you in preparing a response by providing proper documentation directly to the auditing agency. Moreover, if your company is found to be noncompliant, the payroll provider should pay any penalties if the noncompliance is a result of their actions. 

Questions? 

The growing complexity of payroll is likely to continue and business owners must be prepared to devote more attention and expertise to compliance. Education is key. Adams Brown provides proactive updates and alerts about upcoming changes in payroll tax compliance and works with payroll clients to provide notice and understanding of how changes in laws, regulations and taxation will affect them. 

If you would like to discuss payroll outsourcing to help your company remain in compliance, contact an Adams Brown advisor.