Apr 9, 2024 |
Payroll Compliance: More Complex Than You Think
From FLSA, EPA, Workers Comp and more, there are lots of federal laws to keep track of, and state and local taxes only add complexity. That’s why HR and business leaders need to have processes in place to consistently apply pay policies, accurately calculate overtime and streamline leave policies. If you don’t and your company is audited or sued, you won’t have the proper controls in place to quickly provide accurate records and audit trails.
Here are four common Payroll mistakes you might be making:
Misclassifying Freelancers and Employees
If some of your full-time employees are misclassified as independent contractors and don’t receive their benefits, your company could be in some trouble. To make matters worse, misclassifications mean employees can be shorted for overtime wages, which can result in major penalties and lawsuits.
Disregarding Pay Equity
EPA (The Equal Pay Act) dictates that men and women receive equal pay for equal work. If a wage inequality between men and women is discovered, you cannot reduce the wages of either party to equalize pay.
Workers’ Compensation Insurance
Every state has a unique Worker’s Compensation program to provide compensation to employees who are injured on the job. It’s important to keep up-to-date on any changes, especially if you have offices in multiple locations.
Federal & State Payroll Taxes
Payroll tax is one of the most regulated parts of running a business. You’re responsible for meeting federal, state and local tax requirements which includes paying and reporting employer and employee payroll taxes.
Misclassifying Freelancers and Employees
Fair Labor Standards Act (FLSA)
The FLSA, the federal law that mandates a minimum wage and overtime pay, only applies to employees and not contractors, which is an important distinction.
If an employer misclassifies workers as FLSA exempt, it’s likely by accident. Regardless of intent, if overtime wages aren’t paid employers may be in danger of lawsuits and penalties.
The Gig Economy is Affecting Compliance
Employers are working with independent contractors and interns more than ever. But as you may know, gig workers aren’t entitled to benefits such as overtime pay and minimum wage. If your employers aren’t properly classified, they could miss out on benefits, and that could put your organization in hot water.
Here’s a breakdown of FLSA violations in 2018:
1.3 Million cases opened against employers in the last 5 years. In 2018, WHD collected an average of $835,000 in back wages per day. More than $1.3 billion paid in back wages in the last 5 years.
How to Classify Employees & Independent Contractors
The IRS looks at the business relationship your company has with a worker to determine whether they’re an employee or not.
Here are the 3 categories the IRS considers when classifying workers:
- Behavioral Control
- Financial Control
- Type of Relationship
Difference Between Employees & Independent Contractors:
EMPLOYEE CONTRACTOR
Behavioral Control
Has on-the-job training, set hours and guidelines for how their work should be completed.
Behavioral Control
Sets their own hours and decides how the project should be completed.
Financial Control
The worker has guaranteed wages or salary.
Financial Control
Paid a flat fee per project or job.
Type of Relationship
Receives “employee type” benefits (i.e. PTO, insurance, pension plans, etc.)
Type of Relationship
Contracted for a set time or number of projects.
Need help determining the classification of an employee?
For an official determination, you’ll need to file Form SS-8 with the IRS.
Disregarding Pay Equity
Equal Pay for Equal Work: Not as Easy as it Sounds
The EPA seems straightforward: women and men in the same workplace must receive equal pay for equal work. To qualify for equal pay, the jobs don’t have to be exactly the same, but they do have to be significantly similar.
Salary isn’t the only form of compensation covered by the EPA. Overtime, benefits, vacation pay, travel reimbursements and bonuses are all protected. Keep in mind, if the EPA determines there’s a wage inequality, you can’t reduce the wages of either party to equalize pay.
It’s Been a Long Road Since 1963
Title VII of the Civil Rights Act of 1964 and the Equal Pay Act of 1963 prohibited pay discrimination based on gender. But today, 42 states have gone above and beyond the federal law to safeguard women in the workforce.
Not All States’ Pay Parity Laws are Created Equal
While Massachusetts, California and New York have pushed to protect equal pay, states like Florida, North Carolina and Alabama have close to nothing on the books.
How to Pay Women and Men the Same
With today’s HR & payroll technology, some providers offer pay equity dashboards, allowing you to easily identify pay discrepancies by individual, department, location and more.
How to Discover Pay Discrepancies and Fix Them (On Your Own)
Let’s say you haven’t made the investment in technology and you’re not looking to any time soon. How can you identify problem areas on your own and equalize the pay?
Check out these 3 pay discrepancy tips:
- Review Job Descriptions
- Step 1: Identify what the job entails.
- Step 2: Record the types of working conditions the jobs are performed under.
- Step 3: List out what skills and effort is required to do the job.
- Analyze Your Pay Structure
- Step 1. Average the pay (on a weekly, biweekly, monthly or hourly basis) for all women and men based on job content.
- Step 2: Compare the stats! Do all the women fall below the average while men rise above it? (If you don’t have another explanation for the differences like seniority, education, experience, etc., you may need to consider equalizing the pay.
- Know the Legal Pay Discrepancies
- Seniority
- Quantity or quality of work
- Experience
- Training
- Working conditions
- Additional job duties and skills required
- Shift differentials
- Ignoring workers' compensation insurance
What is Workers’ Compensation Insurance?
Workers’ compensation insurance provides lost wages, rehabilitations costs and medical expenses to employees that are injured or become sick at work. If a worker is killed on the job, workers’ compensation also pays death benefits to the related families.
Is workers’ comp an “exclusive remedy”?
According to regulators, since employees agree not to file lawsuits but instead to receive payment for job-related injuries, workers’ compensation is considered an exclusive remedy.
Is Negligence to Blame?
If an employer chooses to ignore workers’ compensation insurance, employees can file suits. But you should never take the risk. Unless regulators determine negligence is at play, insurance will keep you from being held personally liable for the accident. (And just to drive home the point: employers who choose to ignore workers’ comp will face stiff penalties and potential criminal charges.)
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Most expensive Workers’ Compensation accidents:
- Motor Vehicle $73,559
- Burn $49,107
- Fall/Slip $46,297
- Caught by $39,318
- Struck by $36,196
Source Inquiry Facts
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Top 6 occupations with the largest number of injuries and illnesses:
- Laborers (nonconstruction) – 64,410
- Truck drivers – 47,860
- Janitors and cleaners – 35,580
- Nursing – 34,210
- Maintenance and repair – 30,580
- Retail salespersons – 25,200
Source: Bureau of Labor Statistics
How to Create an Injury and Illness Prevention Program (IIPP)
First things first, IIPPs aren’t a one-size-fits-all plan. Your program should be tailored to your industry and your business.
Here are 3 tips to get started on an IIPP:
Identify your existing practices – By auditing your own practices you’ll discover areas where safety practices are lacking. This will give you a starting point for developing your IIPP.
Assess crew sizes, work shift length and working conditions – It’s important to document conditions like average temperatures to see pre-existing red flags that may cause injuries or illnesses.
3. Explore Sample Models from OSHA – Save yourself time and research sample models from OSHA and DOSH. These models outline key IIPP elements, including:
- Compliance
- Responsibility
- Training
- Instruction
- Hazard correction
- Record keeping
Miscalculating Federal & State Payroll TaxesEvery year, 40% of SMBs are fined for payroll tax violations. Miscalculations, incorrect filings and late withholdings deposits can all trigger a fine (and are often caused by error-prone manual processes or disconnected software).
What Payroll Taxes Are You Required to Pay?
State and federal taxes include:
Federal Unemployment Taxes
This is a tax based on the gross pay of employees, documented on Form 940. Payments can be made annually or quarterly.
Federal and State Income Taxes
Form 941 (Employer’s Quarterly Federal Tax Return) requires employers to report income and employment taxes withheld from their employees and deposit the funds to a bank, according to the Federal Tax Deposit Requirements.
FICA Taxes
Otherwise known as Social Security and Medicare taxes, these taxes are withheld from employee pay AND matched by employers. Depending on the size of your company, FICA taxes get paid once or twice a month. FICA taxes are reported quarterly on Form 941.
What Happens if You Have Unpaid Payroll Taxes?
It’s simple, if you fail to pay payroll taxes, you’ll be penalized. Specifically, you’ll be fined a percentage of your gross payroll deposit based on the number of days your deposit is late.
3 Tips to Mitigate Risk
1. Ensure your budget accounts for tax payments.
You may be shaking your head, but it’s common for organizations to overlook taxes. This is a quick simple fix that can prevent a lot of headaches.
2. Audit your current payroll provider.
It’s not always about technology, it’s about the right combination of technology PLUS expertise. Find a provider with a dedicated team of tax experts who can help you remain compliant with federal and state taxes.
3. Stay up-to-date with IRS announcements & resources.
The IRS is constantly publishing news releases, tax law updates, tax tips and form deadlines.
Is it Time to Switch Payroll Providers?
Technology alone isn’t enough. You need technology plus expertise to keep your payroll processes compliant. And you need ongoing support. To succeed, you need a dedicated team of payroll and tax experts that not only understand HR software but are intimately familiar with your business. This is where EBC comes into play. Click here to go to our website to learn more about our services.
Or, learn more about how to get started with a paperless payroll system today, and start learning about how payroll software can help prevent common mistakes and errors.
Working in New York? See what you need to know about processing New York Payroll so that you can also avoid errors.
If Your Current Payroll Provider Isn’t Doing These 8 Things… Run.
User Experience
Your HR and payroll solutions should always have the customer top of mind. It should have mobile functionality to streamline processes for employers and employees while offering seamless integrations with other HR tools.
Integration
Your provider should offer one single source of truth for all employee data. You should never have to switch platforms, log in to multiple systems, re-key information or open multiple spreadsheets.
Employee Self-Service
To eliminate administrative tasks, your solutions should offer employee self-service. Workers should have full visibility into their pay stubs, update personal information and manage PTO without HR’s help.
Tax-Filing Services
You don’t just need payroll, you need payroll that can handle the complexities of your local tax environment and multiple fed IDs. Some HR providers go above and beyond and offer access to teams of dedicated tax experts to help you remain compliant. When you’re evaluating providers, make sure to bring this up.
Reporting
If your payroll provider can’t quickly generate the reports you need, you should consider looking for a new solution. Look for a payroll software system that stores data on the cloud. This will make accessing reports simple and save space on your company servers.
Compliance Management
As you know, HR compliance is so much more than paying taxes. There’s minimum wage, overtime laws, misclassifying employees, workers’ compensation and more. To ensure compliance, you need to be able to immediately access all employee data and documentation. Ask your HR & Payroll provider what they’re doing to mitigate risk for your organization.
Security
Your organization houses a lot of sensitive information about your employees. If this data were to ever get in the wrong hands, it could be devastating for your business. Since your payroll database is a prime target for hackers, you need to have a secure data system. Before you partner with an HR & payroll provider, ask them what security measures they’ll put in place. They should offer multi-factor authentication, access to a risk assessment team and data encryption.
Service After the Sale
Customer service should be one of your top concerns. Technology can only help so much. When you have questions or issues, there’s nothing worse than impersonal 1-800 call centers. Here are a few questions you should ask while evaluating providers:
- Do I have access to a dedicated service representative?
- Can I talk to a representative immediately?
- How long does it usually take to get a response?
- Has your company received any customer service awards
Having EBC HR & Payroll Solutions, Inc. on your team allows you to move forward with confidence, knowing that we’re doing right by your employees, doing right by you, and it’s all being done in accordance with all the latest rules, regulations, and laws. Our philosophy is to provide a comprehensive, wide range of services to all our clients.
For more information regarding Tax/Banking and Payroll Services provided by EBC, please reach out to Mark Terry, Business Development Consultant at 716.998.4404 or mterry@ebchcm.com and/or Charles Bagley, Sr. Human Capital Management Business Consultant at 716.574.9947 or cbagley@ebchcm.com.
Source: Paycor Blog