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Payroll tax compliance is serious business for employers who want to avoid heavy penalties levied by the IRS and other agencies. The payroll tax code is complex and difficult to navigate, leaving even the most well-intentioned companies at risk for noncompliance. Does your business comply with all payroll tax laws? How do you know? Are you confident you won’t incur substantial penalties for missed deadlines, inaccurate reporting or if your business is audited? If not, it might be time to partner with a payroll provider who can help you maintain payroll compliance.

1. What is payroll compliance?

Payroll compliance is the act of adhering to IRS and other tax agency regulations as they pertain to wages you’ve paid to employees. Those regulations encompass a variety of duties, including:

  • Reporting employee information and verifying employee eligibility
  • Employee paycheck withholdings/deductions
  • Paycheck garnishments
  • Unemployment taxes (FUTA)
  • Social Security and Medicaid taxes (FICA)
  • Benefits reporting
  • Employee classification
  • Compensation categorization
  • Health coverage reporting (ACA)
  • Furnishing documents to employees
  • Weekly, quarterly and annual tax deposits
  • Quarterly and annual tax filing
  • Data management and privacy (HIPAA)

The tax code outlines mandates in each of these areas, and failure to follow them can be costly. Not only can you incur penalties and fines, but even simple mistakes can jeopardize eligibility for tax credits that could have a profound impact on your bottom line.

2. Why is payroll compliance legislation important?

There’s no doubt payroll tax compliance legislation is important. Payroll taxes help fund important government programs such as Social Security, Medicare and unemployment insurance. These programs are designed to assist retirees, people with disabilities and workers who have lost their jobs. Payroll compliance legislation also helps ensure fair treatment for employees. The problem is that payroll compliance is complicated. Small businesses often do not have the resources to ensure compliance, and the tax code becomes increasingly complex as businesses grow – making it a major headache for many large businesses. Some of the biggest issues with payroll compliance include:

Frequent changes

Tax laws change every year, and sometimes more than once in a year. That makes it difficult to comply and costly to train staff on ever-changing rules.

Multiple tax codes

Federal taxes are only part of the equation. Businesses also must comply with state, county and city tax codes. If your business is located near a state line or hires remote employees, you likely must comply with multi-state tax codes as well. Keeping track of the various rules, reporting, deposit dates and filing deadlines is a chore, to say the least.

Labyrinthine tax codes

Federal payroll tax codes alone represent hundreds, if not thousands, of pages of rules and documents. It can be easy to overlook important regulations and even easier to miss out on deductions and tax credits. That means you could potentially overpay or underpay your taxes, and both scenarios are costly.

Compliance can be costly

Failure to comply can cost your business dearly, but so can the act of compliance itself. Paying an in-house staff to manage payroll and HR duties is expensive. So is paying for training every time tax laws change. Employee turnover can compound the issue: you incur new training expenses every time you bring a new payroll or HR staff member on board. Payroll compliance can also distract employees from other important duties, which in turn can cost your business. Thus, while payroll compliance is an important part of doing business, it’s also one that can be a hindrance to business growth. That’s why many companies outsource it to payroll service providers who understand the ins and outs of payroll compliance.

3. Payroll tax compliance tools

The good news is payroll compliance doesn’t need to be difficult. Payroll providers can offer a suite of tools and services that makes it easier to meet your tax obligations, pay your tax liabilities, meet important deadlines and accurately report employee wages, benefits and other information. They include:

ACA compliance dashboard and reporting

The ACA (Affordable Care Act) represents hundreds of pages of complicated tax code that can be difficult to comply with. It’s a lot easier with an ACA dashboard that offers individual employee tracking that monitors compliance and automatically notifies you about employees who will soon be eligible for health coverage as well as those who are losing their eligibility. Other ACA dashboard features include time-saving payroll integration that eliminates the need for double entry of employee data and early warning alerts for misclassified employees, unaffordable insurance and enrollment issues. Multi-company status management and support for look-back measurement – which could potentially save thousands of dollars for each new hire – are also part of the package. Deluxe Payroll’s ACA dashboard incorporates all these benefits plus easy-to-read reports, all in an at-a-glance dashboard that makes it easy to get a bird’s eye view of your compliance snapshot.

Custom fields and reports

Standardized reports don’t always meet the needs of businesses, especially when it comes to payroll tax compliance. Customized payroll reports can make it easier to gauge payroll compliance, especially when you have the ability to enter customized employee information. For example, you might want to know which employees have worked overtime on a specific project or which employees are hovering just below the overtime-exempt threshold. Or, you might need to factor employee tips into their earnings. Custom fields and reports can help you match projects to employee hours, incorporate tips and other types of compensation into total wages and display the results at a glance. That, in turn, can help you make important decisions about employee salaries that could have a positive impact on your bottom line – all without risking noncompliance.

Employee self-service and onboarding

Employee self-service and onboarding software can help reduce reporting errors plus free staff time to focus on projects critical to daily operations, business growth and organization-wide compliance. Cloud-based online tools reduce the amount of time your HR team spends managing employee data, automatically helps new employees complete important documents and can even verify Social Security numbers to help establish eligibility to work in the U.S. Employees can use self-service tools to adjust withholdings or enroll in benefits programs. New hires can complete I-9 and W-4 forms, direct deposit information, Work Opportunity Tax Credit and Equal Employment Opportunity information, and review the employee handbook. All data can be stored digitally for easy form generation, retrieval and reporting, which can help you comply with the tax code.

EZ IRA program

EZ IRA makes it easy for employers to offer retirement benefits, which can help you attract top talent and retain valued employees. With EZ IRA, all the legwork is done for you: no Department of Labor oversight or testing is required, there are no 5500 form filing requirements and payroll deductions are automatic. Employer contributions are not required, but if you do contribute, your contributions might be considered nontaxable compensation, which could save you money on payroll taxes. Of course, compliance requires accurate documentation, and EZ IRA can help you track contributions for accurate reporting that helps you comply with the tax code.

Fully integrated time and attendance solution

Time and attendance software simplifies employee tracking, which in turn makes it easy to generate accurate reports, calculate tax liabilities and ultimately help you achieve payroll tax compliance. Features include an AI-based auto scheduling system that optimizes for cost and optimal coverage, easy to use iPad time clocks with facial recognition and advanced reporting and analytics that help you make proactive decisions about employee scheduling. A fully integrated time and attendance solution is payroll ready, too. You can instantly run payroll, attendance and annual summary reports for any date range. Accurate reporting like this is critical to compliance, since your FICA and FUTA tax liabilities are based on employee wages.

Applicant tracking

Job posting and applicant tracking solutions save time and money while helping you identify top candidates. Software can automatically post jobs to top job boards and social media sites, ask pre-screening questions, schedule interviews and even send offer letters. Moreover, the text to apply feature helps you remain compliance with Title VII of the Civil Rights Act plus helps you identify applicants who are eligible for a Work Opportunity Tax Credit (WOTC), which can save you thousands on annual taxes.

General ledger

Keep accurate records that help you maintain payroll compliance with a general ledger that integrates with top accounting systems such as MAS90, Peachtree, QuickBooks, Great Plains, Solomon and SAGE. Deluxe Payroll’s general ledger interface transfers payroll data to your program of choice to help you avoid double entry and facilitate the accuracy needed to comply with tax agency queries and payroll tax reporting.

HR analytics dashboard and reporting

Deluxe Payroll’s cloud-based payroll and HCM platform includes an HR analytics reporting tool that reduces redundant work and minimizes the time HR staff must spend on managing employee data. Accurate reporting is critical to payroll compliance, and this platform integrates with a custom reporting tool so you can instantly generate reports on custom HCM metrics.

Payroll cards

An evolving workforce means some employees are eschewing traditional bank accounts in favor of payroll debit cards. The absence of paper checks and direct deposit information can make it challenging to track employee wages, which is necessary for accurate reporting and payroll tax compliance. Deluxe Payroll tracks all payroll cards issued to each employee, which simplifies reporting and helps you maintain payroll compliance.

Point-of-sale and time and attendance interfaces

Track employee time and attendance at point-of-sale to help ensure accurate wage payments. A point-of-sale interface also tracks sales and tipped income data, and automatically integrates with payroll to help you cut accurate paychecks and comply with tax laws via meticulous reporting. It can also help eliminate errors from keying errors between point-of-sale reports to payroll entry, plus save time by reducing the need for manual entry.

Poster compliance update service

Employers must prominently display labor law posters to comply with legislation, including OSHA, federal minimum wage, FMLA, USERRA and various state specific posters. Failure to do so can incur large fines and even lawsuits. Labor law postings can change at any time of the year, and employers are responsible for compliance. Deluxe Payroll offers a poster compliance update service that notifies you when poster laws have changed. It even offers all-in-one state and federal labor law posters to help you comply with mandatory requirements.

Premium Link helps you make automatic and accurate workers’ compensation payments, which in turn helps you maintain compliance with the law. It automatically calculates your premium cost each payroll period so you have a regular, budgeted and automatic payment plan, which can also help you improve your cash flow. Premium Link works with a wide variety of carriers to simplify onboarding and integration.

Think HR compliance tools

Tie everything together with Think HR compliance tools that help you make sure your business is compliant with payroll tax laws. From employee screening and background checks to COBRA administration, poster compliance and risk management, Think HR compliance tools are an all-in-one solution to your payroll compliance needs. Deluxe Payroll’s range of services include accurate and on-time tax deposits to various agencies, new hire reporting, application of tax law updates to your payroll, consultative services that evaluate your practices and assess your risk, and identification of tax incentives, refunds and credits. If you’re concerned about payroll tax compliance or have questions about what you need to do to comply with payroll tax laws, Deluxe Payroll is here to help. When you partner with Deluxe, you’re getting an integrated solution that’s more than just payroll processing – it’s a team of dedicated experts who can help you save time, resources and money. 

Editor's note: This blog post was deemed accurate at the time of publication and may not reflect recent changes related to payroll law. The information provided in this blog does not, and is not intended to, constitute legal or financial advice.

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