Payroll Compliance Checklist: 8 Steps

Sending notifications gives your payroll team ample time to implement any desired changes to employees’ payroll withholdings. Employees are responsible for knowing how much they owe for payroll taxes and ensuring the correct amount is withheld from their paychecks virtual accountant by filling out their Form W-4 properly. Even if insufficient taxes have been withheld, employees will still be responsible for paying any taxes owed.

• The employer then submits that payment to the appropriate taxing agencies on behalf of the employee.
• Monthly depositors must deposit employment taxes by the 15th day of the month after payments were made to employees.
• Other components in payroll processing are managing holiday, vacation, and sick pay according to the company’s policies and accurately paying employees for their paid time off.
• The following guidelines outline key areas to consider when developing your compliance strategy.
• You effectively pay Social Security and Medicare for yourself because you must remit both the employee and employer contributions.
• At the end of the day, with the sheer number of taxes, rules, and deadlines, payroll taxes can seem very intimidating.
• Accounting encompasses tracking and reporting on the money going in and out of a business.

Payroll Taxes and Employer Responsibilities

Some payroll taxes (like Social Security and Medicare) are partially deducted from employees’ pay while others (FUTA and State Unemployment Insurance tax) are usually paid entirely by the employer. Keep in mind, if employees are paid bonuses, that income might be taxed differently from how wages are taxed. Generally, state taxes are withheld for the state where the employee performs their work.

What Is the Payroll Tax Rate for 2020?

The Fair Labor Standards Act (FLSA) mandates minimum wage and overtime pay for employees, protections not extended to contractors. Missteps in classification can lead to wage and hour law violations, increasing legal risks. Finally, you can implement a payroll process that extends throughout the year—so you know what to do when a new employee starts, when an employee needs to change their status, and when you need to pay your taxes. You’ll also want to make sure you are aware of any updates that are made to federal or state law regarding payroll taxes or the payroll tax rates. This way, you’ll be on top of all your payroll tax responsibilities—minimizing the possibility of errors or other issues that could negatively affect your business. Overall, the federal income tax system is a progressive tax system, where tax rates are higher for people with higher incomes.1 Each taxpayer falls into a federal tax bracket.

Wage Garnishments

At the end of the day, with the sheer number of taxes, rules, and deadlines, payroll taxes can seem very intimidating. Luckily, however, in addition to getting a better understanding of how these taxes work, there are a handful of other actions you can take to ensure you’re meeting all of your responsibilities as an employer. With all of this information in mind, you might be wondering what you have to do, as a small business owner, when it comes to payroll taxes. Essentially, as an employer, you’re held to certain government requirements. As you might imagine, SUTA taxes vary considerably in each state, from as little in 1% in Iowa to as high as 3.689% in Pennsylvania. The federal government grants a credit of 5.4% for employers who pay their SUTA taxes in full and on time, bringing the effective FUTA tax rate down to 0.6%.

• This includes federal and state income tax withholding, social security and Medicare taxes, federal and state unemployment taxes, and state and local payroll taxes.
• Managing payroll deductions involves understanding mandatory and voluntary components.
• Payroll software and processing companies are designed to efficiently manage wages, benefits, deductions, and other necessary documents.
• Small business owners are responsible for withholding, reporting, and paying payroll taxes.
• Workers classified as independent contractors are paid according to the contracted rates agreed upon between a company and the contractor.

Employer Payroll Tax Responsibilities

The term “withholding” means that you are deducting these payments from employee paychecks, based on laws and regulations that require these payments to be made. When you and/or your employees discover an under-withholding, take corrective action. This could mean adjusting future withholdings to make up for the shortfall. In some cases, you may employers responsibilities for payroll do not include need to submit additional taxes directly to the IRS.

• First things first, employers must keep up with updates to both federal and state tax regulations that affect payroll taxes.
• Businesses must pay attention to those laws when determining their pay period and payroll schedule.
• Payroll software vendors like Gusto and Paychex provide cloud-based systems businesses can use to manage payroll on their own.
• Although Uncle Sam doesn’t pay unemployment benefits, it does help states pay employees who have been involuntarily terminated from their jobs.

Accounting encompasses tracking and reporting on the money going in and out of a business. It involves ensuring all income and expenses are appropriately categorized and all bank, cash, and credit accounts are reconciled. Where payroll is concerned, accounting classifies money withheld from employee paychecks as liabilities until the company pays those funds to tax agencies and benefits providers. This may also involve tracking employees’ unused paid time off as a liability so that it can be paid to workers when they exit the company (some states, like California, require trial balance that). In larger companies, payroll specialists are often part of a larger accounting department.

How do you get a SUTA number?

Form 941 is due quarterly on the last day of the month following the end of the quarter. When calculating payroll taxes, you’ll want to keep in mind that all types of wages count. Salary, tips, bonuses, commissions, overtime pay, back pay, and accumulated sick pay are all considered taxable income. However, outside of regular wages, other types of wages are called supplemental wages.

Employers should confirm the appropriate tax rates to use when calculating their employees’ tax responsibilities. Comparable to federal income tax withholding requirements, state income tax withholding rules apply to many employers. However, seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) have no income tax and two (New Hampshire and Tennessee) don’t tax wages. Certain cities — including New York, Detroit, Philadelphia and San Francisco — also impose income tax.