If you have employees, it's crucial to handle payroll correctly to avoid compliance violations and penalties. Running a business involves juggling many tasks, so it's easy to miss new payroll regulations and rules. Every business needs to stay informed and be prepared to adapt to them. You should always anticipate potential changes in state and federal government payroll-related laws because they are likely to occur.
Understanding the key payroll law changes, their implications, and the steps required to comply can help your business maintain smooth payroll operations and financial stability. Here’s what you need to know:
Payroll Laws and Regulations
Rules regarding business payroll management are complex and are always subject to frequent change. It can be challenging to keep up with new payroll regulations, which can happen every year. Employers violating existing or new payroll law changes, even if done inadvertently, face stiff penalties. Ultimately, these issues can negatively impact their bottom line and/or ability to remain operational.
For instance, all businesses are required to adhere to the federal government’s Fair Labor Standards Act (FLSA) which sets the federal minimum wage and overtime rates, governs child labor laws, and stipulates payroll recordkeeping requirements. Another federal law companies must follow is the Equal Pay Act (EPA) which was passed to prevent wage discrimination and ensure equal pay among genders. Other requirements include the Federal Insurance Contribution Acts (FICA), and the Federal Unemployment Tax Act (FUTA).
Keep in mind that the above doesn’t include many other federal, state, and local labor law regulations. It is always a good idea to become thoroughly familiar with existing rules and develop a strategy to keep up with specific payroll law changes. By doing so, companies can better protect themselves and avoid the complications associated with non-compliance with laws and/or potential tax issues.
Changes in Minimum Wage Amounts
The required minimum wage amount can change at any given time at the federal or state level, requiring payroll processing updates to meet requirements to account for these adjustments. Currently, many states have either updated or are in the midst of updating their set minimum wage. Violating minimum wage laws can lead to audits, fines, and other problematic issues in your workplace.
Workers’ Compensation Insurance
Federal law requires businesses to carry workers’ compensation, but every state has its own specific requirements or alternative options. It’s crucial to learn your state’s rules and then adhere to them.
Errors relating to workers’ compensation can be costly and lead to premium increases or lawsuits. This includes not filing or filing inaccurate forms, failing to pay benefits in a timely fashion, or paying inaccurate benefit amounts.
Paid and Unpaid Leave
Providing employees with paid time off demonstrates a business cares about their well-being, but state rules vary. It’s vital to become familiar with your local laws and adhere to them. Additionally, if your business meets the criteria outlined in the Family and Medical Leave Act, you must comply.
Misclassifying Freelancers and Employees
Employers must carefully classify their employees, especially with the rise of the “gig economy”, adding layers of complexity. Companies misclassifying workers as “freelancers” (“contractors”) instead of “employees” entitled to benefits can find themselves in trouble.
Overtime Pay
Federal law dictates employers must pay employees 1.5x their regular hourly rate for any time extending beyond 40 hours per week. However, exempt and non-exempt workers might have different requirements, so this is another detail to track. Additionally, your state might mandate its own rules regarding overtime. Inaccuracy in calculations can lead to problematic issues.
Payroll Legislation 2024
This year brought on several new payroll law regulations and updates on the federal level affecting Social Security taxable base wage, new limits for qualified fringe benefits, updates to HSA and FSA contribution limits, and qualified retirement contribution limits.
States, including Colorado, Illinois, Maryland, Massachusetts, New Jersey, New York, Vermont, and Washington, also made changes in 2024. If your business is in these states, learn what you need to do. If you live in other states, be aware of any upcoming 2025 changes that may occur.
Never Miss Out on New Payroll Regulations
Maintaining compliance with payroll regulations is crucial for every employer. Smaller businesses often have limited financial and staffing resources and, as a result, can inadvertently miss important payroll rule updates, leading to costly fines or lawsuits.
Aside from the above rules you must comply with, there are also additional factors you must consider:
- Payment methods
- Frequency of payment
- Income tax withholding
- Payroll taxes and tax forms
- Recordkeeping stipulations
- Data security
- Multi-state laws (if applicable)
- International payroll rules (if applicable)
Stay compliant with the latest payroll regulations. Contact Payroll Freedom today for a consultation on how we can help streamline your payroll processes and ensure compliance.
