What You Need to Know about Payroll Compliance

If you’re a small or medium sized business, making sure you stay compliant with payroll regulations and laws can be a daunting task. If your company’s not big enough to have an in-house payroll compliance specialist, we strongly advise you outsource to a Small Business Payroll Specialist or you could potentially run the risk of fines, penalties, and expensive litigation. Regardless of your business size or team, you should still know the basics. Here’s what you need to know about payroll compliance!

Federal Wage Laws

The FLSA (Fair Labor Standards Act) regulates the federal minimum wage and hour standards, at the direction of the Department of Labor. It determines:

  • The federal minimum wage.
  • What qualifies as overtime pay and what are the exemptions
  • Legal work hours, including meals and breaks.
  • Child labor law, including permissible occupations and work hours.
  • Recordkeeping for nonexempt and exempt employees, including timekeeping and payroll records.

The FLSA also limits the types of deductions that can be made from the pay of certain employees.

State Wage Laws

State wage laws are (you guessed it!) determined by the individual states, and they can vary widely. Some states have few wage laws and simply let the FLSA determine the rules. Other states, such as New York and California, have passed a number of more generous wage laws. The key is, states can have wage laws that are not at all addressed under the FLSA – and some states even allow cities to have their own local wage and hour ordinances, such as local minimum wage.


Benefits are deducted form payroll, which means you need ton know all about your benefits program to be in compliance with payroll regulations and laws. As an example, you need to know if your benefits are pre-tax or post-tax – or have their own regulations, (such as paid time off).

Federal Taxes

As you know, the IRS oversees the administration and collection of of federal taxes- namely, Income Tax,  Social Security tax and Medicare tax. On top of what your employees pay, employers must also pay their own share of Social Security and Medicare taxes plus federal unemployment tax.

State Taxes

Again, the states determine their own state tax law. In most states, employers must withhold state income tax from employees’ wages.

Depending on the location your business is headquartered, there may be additional state taxes, as determined by your state, city, or even count government, as some cities and counties require local income tax withholding.

Also in most states, employers must pay state unemployment tax plus any other taxes levied by the state. Note that some states have reciprocal tax agreements for employees who live in one state but work in another.


Employers must file periodic reports with the appropriate federal, state and local agencies. These reports detail:

  • Form W-2 reporting.
  • Federal employment tax reporting.
  • State wage and tax reporting.
  • Local wage and tax reporting, if applicable.

Payroll Compliance

Keeping in payroll compliance can be stressful, but with a little time spent studying, you will be okay. However, if you’d rather spend your time running your small to medium sized business instead of reading throw tax law, we can help. We offer an easy-to-onboard, easy-to-use, and automatically compliant outsourced payroll solution.

If you’re ready to learn more, fill out the form below and if you’d like to know about pricing, request a free price quote!

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