Payroll is an important part of running a business. Companies know that they have to fulfill payroll obligations regularly.
By fulfilling your payroll obligations you ensure that you are maintaining the health of the company, that you are paying your employees on time, and that you are following the employment law.
But do you know all of the payroll laws?
It is crucial that you know and your company follows all of these laws so that it doesn’t run into any issues.
We’ve put together this guide to help you out.
Payroll Laws That You Should Know
While educating yourself about legal obligations can be strenuous, it’s crucial that you do so for ensuring that your company is compliant and that you can continue with business as usual.
Here’s what you need to know:
1. Keeping Accurate Records
While it isn’t strictly a law, you can get into legal complications if you don’t keep accurate records of how much you are paying your employees.
You should use a paycheck stub maker and send these pay stubs to your employees when you pay their wages. These pay stubs will show the gross earnings as well as any withheld taxation.
If there is ever a discrepancy or a claim of unpaid wages, you’ll have the pay stubs to back up your claims.
2. Tax Rates
It’s crucial to withhold the correct tax rates from each employee’s wages.
Here is what you need to know regarding payroll tax rates:
The income tax rate is always dependent on your employee’s overall wages as stated in their W4. Always educate yourself on the tax rates for the different income tax brackets.
The social security tax rate is always 6.2 percent of the employee’s gross wages. There is also a Medicare tax that is 1.45 percent of the employee’s gross wages.
These are the main tax rates that you should know about. The federal government, of course, can always change the tax policies and tax rates regarding income, social security, and Medicare tax ( You may include your medicare advantage plan as well). Be on top of these rules at all times. See how much Medigap Plan G costs this year.
Additionally, there are two other tax rates that may apply to you.
These are unemployment taxes. One is the Federal Unemployment Tax Act (FUTA). FUTA is six percent of the first $7,000 that you pay your employee.
There may be a State Unemployment Tax Act (SUTA). SUTA depends on the rate of your particular state, so you’ll have to make sure you are up to date on this rate.
3. Worker’s Compensation
It is also a requirement to purchase Worker’s Compensation insurance for your company. This insurance pays for any costs needed for employees who are injured at the workplace.
It is rare for a company to have to not have to purchase Worker’s Compensation insurance. Do your research, but it’s best to assume that you will be required to purchase it. It’s an important rule of payroll that you purchase an insurance policy for each of your employees. Make sure you don’t postpone this obligation.
4. Additional Withholdings
When fulfilling payroll obligations, there will likely be additional withholdings that are required.
For example, you may be required to collect court-ordered garnishments. This may include withholding additional income from an employee’s wages in order to pay off debts.
If your company owes any back taxes, you may be able to pay via payroll – known as a tax lien.
Both of these above deductions are involuntary. There are also several voluntary deductions that you may wish to collect.
For example, you may have to withhold deductions for retirement accounts such as 401(k) and 403 (b) accounts.
There are also withholdings for health insurance premiums such as vision plans, dental plans, and general medical plans. Additionally, there are life insurance premiums that you can withhold from employee’s wages.
If any of your employees are disabled, you may be able to withhold part of their wages to go toward disability plans. These are at the employee’s expense and they can choose the type of plan that they want and whether they want a short or long plan.
If applicable, union dues may also be automatically removed from an employee’s wages. If continued education or certification is required for the employees, it has to be paid at the employer’s expense.
5. Minimum Wage
All states will have a required minimum wage to pay employees. One of the most important payroll laws to follow is to ensure that your employees are being paid at least the minimum wage if they are on an hourly wage.
Additionally, if your full-time employees work overtime there will be laws pertaining to how much they have to be paid for working overtime.
Make sure that you are always up to date with the minimum wage and overtime laws so that you are paying your employees the minimum that is required. Failure to do so can have serious consequences for your business.
6. Records That Are Required
In our first point, we mentioned the importance of keeping records. We said that though records aren’t always the law, it is advisable to keep records through pay stubs.
But there are records that are required. The Fair Labor Standards Act (FLSA) requires keeping records of time worked among a plethora of others. Additional requirements may be designated by your state law.
It’s also required that the company retains records for a period of time. For example, Illinois requires retaining records for five years. California requires retaining records for eight years.
7. Holiday Policy
This is also not a required law, but rather a guideline that should be adhered to if you wish to offer holiday pay.
You should have a clearly drafted holiday policy. This will include information on what holidays can be requested off, what holidays are automatically granted off (such as Federal holidays), and how the employees will be paid for this time off and how much they will be paid.
Having a holiday policy is a great way to attract candidates who are looking for a company that provides them with the best deal.
On Top of Payroll
Now that you know the payroll laws and guidelines to follow, you can ensure that your company is always on top of payroll obligations. This will hold your business in good stead and be a benefit to your employees.
Be sure to read more great content on entrepreneurship and running a business.