Payroll Compliance: A Guide for Employers

Gabrielle Sinacola | Feb 19, 2024

Payroll Compliance: A Guide for Employers

If you’re trying to successfully manage your business operations, payroll compliance is a must. For employers, particularly in the small business sector, adhering to all of the payroll regulations is both a legal obligation and a strategic business move.

For one, it ensures smooth operations — but it’s also partially responsible for employee satisfaction and safeguards against potentially costly legal pitfalls. These are pretty big deals for any business owner.

So, what do you do about it?

We’re here to help. Mosey doesn’t just organize your payroll compliance — it transforms this often confounding task into a streamlined, manageable process.

Tailored for US-based small businesses, particularly those expanding or operating in multiple states, Mosey is a partner in your journey toward seamless compliance management.

How Is Payroll Compliance Changing in 2024?

In 2024, employers need to stay updated on the latest payroll compliance guidelines to ensure they’re on the right track.

These include:

  • Social Security Wage Base Increase: The Social Security wage base has seen an uptick, now standing at $168,600. This change signifies an increase in the maximum earnings subject to the Social Security tax, impacting both employee and employer contributions.

  • Health Flexible Spending Arrangement (FSA) Contribution Limit Increase: The FSA contribution limit has risen to $3,200. This adjustment offers employees more flexibility and capacity in setting aside pre-tax dollars for health care expenses.

  • Pre-Tax Contribution Level for 401(k) Increased: Preparing for the future is now more robust with the increase in the pre-tax contribution limit for 401(k) plans, now at $23,000. This enhancement aids employees in bolstering their retirement savings more effectively.

  • FICA Threshold for Household Employees Increased: The FICA threshold for household employees has escalated to $2,700. This change affects employers who hire household help, altering the payroll tax requirements for such employment.

Each of these updates presents its own set of challenges and opportunities for businesses. With its intuitive platform, Mosey simplifies these complexities, allowing you to focus more on your business growth and less on the intricacies of payroll compliance.

What Are the Main Federal Payroll Regulations and Employer Responsibilities?

Understanding federal payroll regulations is essential for any business, especially when navigating the complexities of compliance.

Here’s a breakdown of the major federal payroll laws and what they mean for employers:

Fair Labor Standards Act (FLSA)

The FLSA sets the national minimum wage and overtime rates, ensuring employees are paid fairly for their work. It mandates that non-exempt employees receive no less than the federal minimum wage and one-and-a-half times their regular pay rate for overtime hours (over 40 hours per week).

The act also prescribes specific guidelines for payroll recordkeeping and regulates child labor, ensuring young workers are not exploited.

Federal Insurance Contributions Act (FICA)

FICA is a payroll tax that finances Social Security and Medicare programs. Both employers and employees contribute to FICA, with current rates standing at 7.65 percent each, totaling 15.3 percent of an employee’s wages.

Note that Social Security taxes apply only up to a certain annual wage limit, while Medicare taxes continue beyond that limit.

Federal Unemployment Tax Act (FUTA)

FUTA is an employer-only payroll tax used to fund state workforce agencies. Employers pay FUTA tax at a rate of six percent on the first $7,000 of each employee’s annual earnings.

However, they can get a maximum credit of 5.4 percent when paying state unemployment taxes, potentially reducing the FUTA rate to 0.6 percent.

Equal Pay Act (EPA)

The EPA is a law that aims to eliminate wage disparity based on gender. It requires that men and women in the same workplace be given equal pay for equal work, encompassing all forms of compensation.

Davis-Bacon Act

This act mandates that businesses involved in federal public works projects pay their laborers and mechanics prevailing wage rates, as determined by the Department of Labor.

Essential Aspects of Federal Payroll Tax Compliance

Complying with federal payroll tax laws involves accurately calculating wages (including overtime), withholding the correct amount of taxes, and making timely deposits with tax agencies.

Employers must also adhere to specific filing requirements for tax returns and other payroll-related documents with federal, state, and local tax agencies.

Understanding federal payroll regulations becomes manageable with Mosey. Mosey offers a streamlined approach to ensure your business stays compliant with these laws, reducing the risk of penalties and enhancing operational efficiency.

What Are the Basics of State-Level Payroll Compliance?

When it comes to state-level payroll compliance, one size definitely does not fit all. Each state in the U.S. can feel like a separate country with its own set of payroll laws and regulations.

With that in mind, let’s examine some variations in state income taxes and unemployment tax rates:

  • Diverse Tax Landscapes: Some states mirror federal income tax codes, others set their own brackets, and a few don’t levy income tax at all. Employers must be vigilant about these differences, especially when operating across multiple states.

  • Unemployment Tax Rates: These also vary significantly from state to state, affecting business costs in different regions.

  • Minimum Wage and Disability Insurance: States may impose different minimum wage requirements and disability insurance costs, adding another layer of complexity for employers.

  • Local Ordinances: Some jurisdictions even have local ordinances that further complicate payroll compliance, such as city-specific minimum wages or paid sick leave laws.

For businesses operating in multiple states, the complexity of compliance multiplies. Each additional state brings its own rules and regulations, requiring a comprehensive understanding and approach to ensure compliance.

Mosey helps businesses seamlessly maneuver these varying state-level requirements by keeping all of your compliance needs in one platform — ensuring that your payroll compliance is as efficient and error-free as possible.

What Are the Risks of Non-Compliance for Payroll?

The financial and legal consequences of failing to comply with payroll regulations can be substantial for any business. Non-compliance can lead to audits, fines, and even legal actions.

Businesses may face back payment of missing wages, penalties, and interest. This strains financial resources and can damage a company’s reputation, leading to decreased employee morale and trust.

In extreme cases, non-compliance can result in losing important data and jeopardizing the business’s operational integrity.

What Are Common Payroll Compliance Mistakes?

Even with the best intentions, errors in payroll management can occur. Common mistakes include misclassifying employees as independent contractors, leading to incorrect tax withholdings and potential penalties.

Another frequent error is failing to accurately calculate overtime pay according to state and federal laws. Employers might also fall short in maintaining proper payroll records or miss critical tax filing deadlines.

These mistakes not only risk non-compliance but can also disrupt employee relations and erode trust within the organization.

How Can You Avoid Payroll Compliance Mistakes?

Being proactive is key. Avoiding mistakes keeps your business on the right side of the law and upholds the trust and morale of your team.

Here are some effective strategies to help you maintain compliance and accuracy in your payroll process:

Maintaining Accurate Payroll Records

Accuracy in payroll records is the foundation of compliance. Ensure that all employee data is up-to-date and thoroughly reviewed for accuracy. This includes personal information, wage rates, hours worked, and any other relevant details.

Regular audits of your payroll records can catch and correct discrepancies early, preventing them from snowballing into larger issues.

Using Payroll Software

Leveraging technology, particularly payroll software, can be a game-changer. Payroll software automates calculations, reduces manual errors, and keeps up with the latest tax rates and regulatory changes.

The right software can also help generate reports and maintain records, ensuring that your payroll process is efficient and compliant.

Trust Mosey for Your Payroll Compliance

Having a reliable and efficient tool like Mosey can make a significant difference in payroll compliance. Mosey simplifies the process, offering peace of mind and freeing up valuable time and resources. You can even automate opening payroll accounts in any state through Mosey.

By choosing Mosey, businesses can confidently manage their payroll compliance, focus on their core operations, and foster a positive work environment built on trust and compliance. Book a demo today to simplify your payroll requirements.

Read more from Mosey:

Review your compliance risks, free.

Ready to get started?

Sign up now or schedule a free consultation to see how Mosey transforms business compliance.