If you are in the dark about how to properly pay, you could run into some pretty serious issues. When you are running a business, it is your business to know. It is your business to know everything unless in case you have someone else taking care of the hard parts for you.
Some business owners decide that instead of dealing with confusing payroll rules and regulations that may or may not decide to change once you learn them that they would rather work with expert PEO companies that will allow them to stop dealing with all hassles rating to payroll and instead focus on what is most important – their growth. In case you want to keep going it on your own, here are 4 ways to keep your payroll compliant.
1.Always Pay Employees Inside of Payroll
It doesn’t matter what type of payment you are paying your employee. Each payment that you pay them has to go through payroll since they are a taxable wage. This means the commission, holiday pay or even fun entertainment bonuses that you give them. Yes, they are nice gifts, but they are also considered taxable income since you are their employer. If you need to reimburse for business expenses that can be an exclusion but you must have supporting receipts.
If you are wondering how important this is to follow, you should know that the IRS places the burden on the employers to make sure that there are proper withholdings for payroll taxes. Not only will you get penalties for late tax payments as well as having to re-file returns and send W2s out to amend the mistake, you may also have to pay the employee’s tax portion.
Make sure you have procedures in place to check for proper reimbursement and do a review of your vendor payment list on a quarterly basis to ensure you have an account of all payments to employees that were not issues properly through payroll.
While this might sound like a lot of work, it is much less work than having to deal with trouble from the IRS.
2.Know Overtime & Work Week Rules
When you are doing payroll, you need to make sure that you know the difference between pay period hours and work week hours. Regardless of how frequently your employees are paid, you must calculate overtime hours for non-exempt hourly employees based on a certain 7 day period of time.
What happens if you fail to comply? Besides for having to give back pay, you will also have to pay up to $1,100 per violation. If there is a claim filed against you by the employee, you are the one that is obligated to look into the matter and the burden is on you to provide payroll records for at least 3 years as well as time card records for the past 2 years or more. It doesn’t matter if this is a current employee or an employee of up to 2 years no longer working for you if the violation is found to be true.
Instead of trying to trust yourself with calculation, a good solution would be to use automated timekeeping software that is able to auto-calculate the true earnings based on the laws in your state.
3. Know Overtime Rules Relating to Salaried Employees
If you think that having a set salary for your employees is going to satisfy the exemption clauses that protects employee rights to overtime pay, this is an error in thought. It does not do this by default. You will be required to meet specific requirements and best practices for deductions from pay as well as benchmarks in wages that have to be met.
Those of you that choose not to be compliant will get the same penalties as those that did not pay overtime for the work week. Making sure you are compliant is key since that could be a lot of money you are losing from failure to comply.
Be sure to look closely when you are going over your handling of salaried employees and make sure that your employees fit under all requirements required for them to be fully compliant with FLSA standards.
4.Know the Difference Between Pre-Tax Vs Post-Tax Deductions
There are some deductions that are pre-tax deductions. This means they can be taken out of your gross income before taxes and reduce the employee’s tax obligations and employer tax expenses. You may find some dental and medical premiums fall under pre-tax. Deferrals for money to go toward company 401k or IRAs may also be pre-tax.
Making sure that you know the difference in important. The subtleties can catch you so make sure that you are careful. If you don’t want to deal with this, it is a good time to speak with a PEO company. What is a PEO?
Running a business isn’t easy but you don’t have to make it more difficult than necessary. Use these tips to keep your payroll compliant. While there are other important things to keep in mind, these are a good way to get started and make sure that you are on the right path. Even one mistake could cost you thousands of dollars depending on how big your company is so learning other tips and information on keeping your payroll compliance is important unless you are going to allow someone else to take it over for you.