How to Avoid the Top 3 Payroll Compliance Mistakes

One of the most important—and frequently most challenging—aspects of payroll management is compliance with payroll laws. Laws, rules, and federal and state obligations seem to be getting more stringent every year. The likelihood of making expensive mistakes also increases along with them.

It can be expensive to disobey

More than possible fines, fees, and government penalties are involved in the cost of non-compliance. You could end up spending a lot more money and time having to go back and redo paperwork, fix mistakes that have already been made, and fill out more papers as a result of blunders.

A whole book might be filled with all the many mistakes that could be done, but three, in particular, should be mentioned when discussing payroll compliance practices:

Failure to timely submit the proper forms

The federal government mandated that firms notify their state authorities of all new employees as of October 1996. They have between 10 and 20 business days to disclose this data. The National Directory of New Hires receives this data from the state (NDNH).

There are quarterly and year-end deadlines that must be completed in addition to the requirements for recruiting specific employees if you don’t want to incur fines, fees, and potential audits. These deadlines apply to Form 941 filings, which are due on the last day of the month after the end of the quarter, most state quarterly filings, which are due on the same date after the end of the quarter, and Year End deadlines for sending W-2s to your employees and 1099s to your vendors as well as submitting paper 1096 and 1099 forms with the IRS.

A vital component of preventing non-compliance is the use of a thorough and precise checklist for filing deadlines.

A worker being given the incorrect categorization

Cost-free Download Outsourcing Payroll: A Guide Workers can be categorized as either employees, independent contractors, statutory employees, or statutory non-employees, all of which include the risk of misinterpretation. The first step in deciphering the IRS definitions of employment status is to consult IRS Publication 15-A. The worker’s status for tax reasons should also be determined using the IRS Form SS-8. The appropriate classification for the employee will subsequently be communicated to you by the IRS.

Failing to appropriately preserve and keep employee records

This is an area where inadvertent non-compliance is likely to occur because of the enormous amount of records and the numerous payroll compliance standards that surround them. Again, checklists are a fantastic tool to use to keep everyone in charge of employee and tax records informed of what is necessary.

Specific time requirements for employee paperwork are set down in the Fair Labor Standards Act (FLSA):

• After the last entry date, employee payroll records must be kept for at least three years.
• The IRS mandates that employee records be kept for four years following the individual’s departure from the company.
• According to the Family and Medical Leave Act, any employer with 50 or more employees must maintain records of all employee leaves (FMLA).
• Additionally, each state abides by specific regulations enforced by unemployment offices that mandate employers keep employment data on file. These records should be kept for a minimum of four years and a maximum of seven years.

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