If the employee exits the organization and returns to work within a year of receiving the letter, you should start withholding income tax from their wages based on the rate specified in the letter. Employers in some states may be required to pay employees for certain types of special pay, including on-call pay, reporting-time pay and meal break penalty pay. FMLA allows certain employees to take unpaid, job-protected leave for family and medical reasons. While “unpaid” may make some assume it has little to do with payroll, that’s not the case. While broad compliance falls on everyone in an organization, HR and accounting are generally responsible for payroll.

Misclassifying employees can lead to fines, back taxes, and legal issues, so it’s important to get it right from the start. Comprehensive employment guides covering local labor laws, payroll, taxes, work permits and visas, leave and terminations in any country. Some states have laws regarding how employers pay their employees (i.e., direct deposit or paper checks). Some states don’t allow you to pay employees through direct deposit or pay cards unless you meet specific requirements outlined in the state’s laws. With changing regulations, tax thresholds, and employment laws, staying up to date is essential to protect your business and support your employees.

Employee Dissatisfaction

Encourage them to attend webinars or workshops to keep their knowledge fresh, and consider subscribing to industry certifications or courses that provide in-depth legal training. We were concerned about all the compliance, but now we know we can trust Deel to manage the complexities of hiring in the US. It’s something we have to get 100% right for our people and for our business. Browse final paycheck compliance requirements by state on the DOL website. They onboarded 20 people on all three platforms to test ease of use.

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Each benefit category has different tax rules and reporting obligations. Misclassification or errors can lead to compliance violations and employee frustration. The Consumer Credit Protection Act (CCPA) sets federal limits on how much can be withheld, though some states have stricter rules. Separate laws apply to federal student loan and IRS wage garnishments. Department of Labor increased the minimum salary threshold for most exempt white-collar workers to $1,128 per week ($58,656 annually). Employers should review exempt classifications to ensure employees still meet both the salary and duties tests under the Fair Labor Standards Act (FLSA).

Failure to comply can lead to costly penalties and damage to employer-employee trust. While federal statutes, like the FLSA, establish a baseline, many states and municipalities build upon these rules with stricter or additional requirements. On top of that, 87% of companies report that the rise of hybrid and flexible working has put considerable pressure on payroll. In this guide, we’ll simplify payroll compliance, highlight key regulations, share expert tips, and provide a handy checklist to ensure your payroll processes are seamless and legally sound. This guide provides a comprehensive payroll compliance checklist tailored for U.S. businesses. Whether you’re a small business owner or a payroll manager, you’ll learn how to prevent costly errors, stay updated on tax regulations, and implement best practices for payroll management.

State income tax laws

Tax exemptions could apply to employees who don’t meet a certain income threshold or those who are executive, administrative, professional, computer or outside sales employees. If your state taxes residents’ income, you’ll need to withhold state income tax from your employees’ paychecks. The amount you withhold will depend on the employee’s gross taxable income and the information they provide on Form W-4. In California, employees must receive a 30-minute unpaid meal break after five hours of work. If this break isn’t provided, employers owe the employee one hour of pay.

Payroll Compliance Checklist for U.S. Businesses

• Careful consideration and, potentially, legal counsel are recommended to make an informed choice.
• We’ll handle the admin of benefits management and all things HR, while you build your business.
• This includes taxes, deductions, and benefits, and the specific rules can vary depending on your location.
• Use free tools that provide real-time compliance updates to stay on top of these changes.
• It can get complicated, so using payroll software is often helpful.

Read our blog post to verify the current SUTA tax rates in the state(s) where your business operates. In order to participate in PAID, you must be covered under the FLSA or the FMLA. You can’t have any previous labor law violations from the past three years or not be a party to any litigation involving compensation practices. Please visit the PAID website to review other requirements and confirm that you’re eligible. By prioritizing payroll governance, organizations can navigate the complexities of compliance while building a sustainable, ethical payroll framework that supports long-term growth.

Download our 2025 payroll calendar to stay on top of pay periods, deadlines, HR compliance dates and fun holidays. If a company is uncertain about its compliance, it should always consult a licensed legal professional. The EPA, which is part of the FLSA, prohibits gender-based wage discrimination for employees performing substantially similar work.

• Schedule monthly or quarterly audits of payroll records, employee classifications, tax filings, and deductions.
• The current FUTA tax rate is 6% of the first $7,000 a business pays to an employee each year.
• LLCs combine the pass-through taxation benefits of partnerships with the limited liability protection of corporations.
• With the rise of remote work, employers must also consider how FLSA regulations apply to employees working across state lines.
• Some states have more intricate stipulations for employee overtime pay.
• Using outdated or incorrect data can result in payments being sent to the wrong place or tax errors.

Most businesses are covered by some law related to payroll compliance. But what applies to them may differ based on their exemption status and company size. For instance, the ACA only applies to organizations that employ 50 or more full-time employees (including the full-time equivalent employees based on the hours they work). The complexity of state and local payroll compliance can feel overwhelming, especially for businesses operating across multiple jurisdictions.

Key Elements of Payroll Governance

In addition to the general rules, your business might have to follow special laws specific to your industry. These rules can be necessary, and breaking them can get you in big trouble. It’s crucial to stay up-to-date and consult tax experts like the ones at doola to avoid any surprises. By the end of this a payroll compliance checklist for us companies checklist, you’ll clearly understand your compliance obligations and the tools to manage them effectively. These rules come from the government, from your industry, and even from your own customers.

In 2024, women earned an average of 85% of what men earned, according to a Pew Research Center analysis of median hourly earnings of both full- and part-time workers. Pay equity and transparency laws seek to close the wage gap between men and women. During the self-audit, review your pay and leave history to identify FMLA and FLSA violations that may have occurred within the past two years, and the workers involved. Contact your local Wage and Hour Division office, and staff from the division will walk you through all the information and data you need.

Once this is established, you must file the right documentation according to their classification. You must ensure that their classification is correct in order to avoid penalties. This is a question that many companies that use the Dynamite Jobs platform to find remote talent have. Garnishments, even those resulting from judgements against a specific employee, can still result in an employer being held liable for the full amount and citations if not followed.