5 Steps to Payroll Compliance with HRMS

As an employer you not only have an obligation to pay your employees what they’ve earned, you also have to give the government its share. In essence, this involves withholding a portion of the salary you pay and then passing it on to the appropriate government body (federal, state, etc.) according to the designated schedule. Naturally, there are penalties for failing to comply and there is no shortage of public accounting firms offering a payroll compliance audit service; to check your books before the IRS (or similar) do it for you.

But payroll compliance goes beyond being the government’s tax collector, there is other legislation that demands employers keep certain records and file particular reports. As well as the Internal Revenue Code that tells you how much income tax to withhold and where to send it, the following federal statutes lay payroll-related responsibilities on employers:

The Federal Insurance Contributions Act (FICA) covers tax deductions made for Social Security, disability, and Medicare. FICA records must be kept for at least four years after the date the tax is paid. FICA applies to all employers (even if you only employ a single person) and requires quarterly reports to the IRS and annual submissions to the Social Security Administration

FUTA is the Federal Unemployment Tax Act and requires annual IRS reports covering your employee wages and taxes for the purposes of managing unemployment programs. As with FICA, accurate records must be available for at least four years.

The Fair Labor Standards Act (FLSA) covers minimum wage, overtime pay, equal pay and child labor. For this, most employers (depending on volume of sales and number of employees) must keep two years’ worth of records covering shipping and billing, additions or deductions from wages, wage rate tables, and work time schedules.

In a nutshell, there are five simple steps to payroll compliance using HRMS:

Be very aware of your responsibilities

This is where an up to date HRMS can take the weight off, automatically making deductions according to the latest tax tables and so on (just make sure that regular updates are part of your software license/contract).

Great recordkeeping

Secure, backed up data covering your whole workforce, showing each individual’s employment status, salary, benefits, and so on is a must and – thankfully – should be standard with any HRMS.

Integrate your systems

This is not necessarily a ‘must’ but if your payroll module can talk to your benefits management module which can talk to your time and attendance module (and so on) then the quality and ease of your data reporting will be greatly enhanced.

When the HRMS says “report”, do so

In other words, follow the system prompts for your payroll and other reporting requirements (W-2, W-3 forms, etc.)

When the HRMS says “pay”, do so

Follow the system prompts for payments; the last thing you want to do is miss a payment to the IRS!

Put simply, acting in accordance with these statutory mandates is the only way to avoid a fine or worse – some of this legislation carries criminal penalties as well as civil. An excellent system of recordkeeping, found with most HRMS, is a sensible investment in order to ensure payroll compliance and lower the probability of things going wrong in the payroll department.

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Dave Foxall

About the author…

Dave has worked as HR Manager for the Ministry of Justice for a number of years, he now writes on a broad range of topics including jazz music, and, of course, the HRMS software market.

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Dave Foxall