Payroll compliance means more than just ensuring paychecks come out on time. Cutting checks has become one of the least important parts of a payroll professional’s job. These days ensuring the company is compliant with payroll and employment laws can mean the difference between smooth payday sailing and potential legal trouble, a tax audit, or bankruptcy.
Payroll compliance doesn’t have to be hard, though, or scary. By building good payroll compliance habits now, you’ll save your company time, effort, and lots of money later. These six habits will keep your employees happy and the tax man off your back.
This is an easy one: Make sure every employee has all the right paperwork. Use a central repository for all of your documents, but also track your employee documentation in your HR software where you can easily find any changes.
Start this habit now by locating every employee’s Form W-4 and any other pertinent documentation. If you haven’t already added it to your HR software, do so, and then shred the paper. Your payroll software should be able to classify contractors vs. employees and exempt vs. non-exempt employees.
Finally, 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. This might be a range depending on seasonal changes, but not having a number to reference means you guess every month, which won’t turn out well.
Payroll documentation, whether in a filing cabinet or the cloud, contains sensitive personal identification data including Social Security numbers, addresses, and private information regarding work eligibility. There’s no reason Pam from IT needs to know Karl from sales has wage garnishments, and Karl shouldn’t be able to find Pam’s bank account number through a quick search in the asset management software.
All of your payroll data should go to a secure cloud product with encryption, and only those employees who need to interact with the payroll department directly 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 in the payroll officer’s desk.
One of the best habits you can build for payroll compliance is regular oversight from managers. Before payroll is submitted, managers should double-check hours and approve or deny any inconsistencies from period to period.
Double-check any garnishments and withholding on fringe benefits as well. Run the audits and reports in your payroll software and check them against your documented numbers for hours and pay. Set aside a few hours every pay period for oversight on your company’s calendar, and make that meeting mandatory.
Sure, payroll runs on a schedule, but your calendar should not only include the days where payroll is a priority. While it’s important to get hours submitted by Thursday at noon, oversight meetings should go on your calendar as well as regularly scheduled financial audits.
Schedule out in advance your tax reporting: Do you do this quarterly or yearly, and when should you start looking at your documents to ensure they’re sent in on time? Schedule a meeting with your tax attorney during this window. Just outlining time on the calendar for compliance events goes a long way toward getting it done.
If your HR or accounting department uses project management (PM) software--and it should to keep track of large, ongoing projects with many moving parts--make sure major compliance events get scheduled in that software, too. And many PM tools have workflow capabilities, which will automatically send documents off for signing or notify employees of upcoming due dates.
Watch the laws:
Things move slowly in Washington--until they don’t. Keep an ear out for any changes Congress and your local government makes regarding income, overtime, and compliance. It might be a good idea to contract with a tax attorney if you need clarification. Every US business should pay attention to these laws (at least):
The more you and your teams can automate processes rather than doing manual work, the less time it takes and the fewer errors you make. Modern payroll software supports automation, saving your HR team hours every month. Look for these sorts of features in your payroll:
- Dedicated tax documentation capabilities
- Automatic calculation of employee hours
- Integrations with time and attendance apps
- Built-in auditing and reporting
Payroll compliance is as easy as building the right habits. The right software and a little bit of know-how will keep your company from drowning in fees and potential legal troubles.
Tamara Scott is Research and Content Manager for TechnologyAdvice.com. She writes about the intersection of technology, business, and education in Nashville.