A payroll compliance checklist for US companies

Let’s be honest, managing payroll can be a complex process. One of the factors contributing greatly to that complexity is compliance with the various federal, state and local legislation. As an employer there are all kinds of obligations on you – all with the intent of ensuring fairness, of course – and what follows here is a quick checklist of the key federal requirements.

Fair Labor Standards Act (FLSA)

The FLSA establishes the federal minimum wage that you must pay (though state laws may set a different figure, in which case the higher of the two is payable). The legislation also mandates overtime be paid when an employee works more than 40 hours per week. A poster stating FLSA requirements must be displayed in the workplace.

Relevant government body: Department of Labor

Equal Pay Act (EPA)

Again, the key measure here is about rates of pay. Men and women performing substantially similar jobs in the same establishment must be paid the same.

Guide: four key principles of HRMS payroll management

Employers must pay male and female employees the same wage for the same job. One key amendment is the Lilly Ledbetter Fair Pay Act, 2009 which states that the 180-day statute of limitations for filing an equal pay suit runs from the date of the most recent paycheck (effectively increasing the possibility of a claim).

Relevant government body: Equal Employment Opportunity Commission

Federal Income Tax Withholding

Employers must withhold a mandated percentage of employee wages and pay it to the federal government. Form W-2 must be filed for each employee.

Relevant government body: Internal Revenue Service

Federal Insurance Contribution Act (FICA)

In addition to income tax withholding, employers must make similar deductions from employee wages to cover Social Security and Medicare tax. The latest rates can always be found on the IRS website.

Relevant government body: Internal Revenue Service

Federal Unemployment Tax Act (FUTA)

Unemployment tax is a payment by employers (not a deduction from employee wages) to fund federal unemployment programs. The likelihood is that you will have a state unemployment tax as well.

Relevant government body: Internal Revenue Service

Consumer Credit Protection Act (CCPA)

When an employee owes a debt following a court order or other legal procedure (such as state tax collection, or an order from the IRS), the employer is required to garnish (i.e. withhold a portion) of their wages.

Relevant government body: Department of Labor

Affordable Care Act (ACA)

Employers with more than 50 employees must offer a ‘minimum essential coverage’ health insurance option to their workforce or make a shared responsibility payment to the IRS. The employer also has reporting responsibilities, both to the IRS and to employees.

Relevant government body: Department of Health and Human Services & Internal Revenue Service

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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