Payroll is one of those aspects in business that takes up a lot of time and mental energy to stay current with. For those who operate businesses in multiple locations, remaining compliant can be a full-time job with all of the nuances involved.
However, payroll is one of the most important functions in your business as well. It’s how you compensate employees for the time they spend performing tasks for you — and ultimately, how you keep the lights on at your establishment. Using a payroll tool empowers your HR team to pay employees on time and correctly, eliminating the possibility for human error to snowball into a large fine from the government or the loss of employees.
For a general outline of issues that companies should avoid in 2022, Hireology has compiled this list of five ways that franchised businesses can become noncompliant if their payroll isn’t correctly maintained.
Increase in Social Security base limits and taxes
It’s been said that the only certainties in life are death and taxes, but even taxes change yearly. If your HR department doesn’t spend time researching these adjustments at least annually, then ensuring that your payroll is compliant is going to be a larger headache than it should be.
In 2022 alone, the Social Security wage base limit increased by $4,200 to $147,000 total. In addition, the maximum social security tax that employees and employers pay in 2022 increased by $260.40 to a grand total of $9,114. If your company has not already made the adjustments necessary to your payroll to compensate for these increases, it might be time to schedule an internal audit.
Incorrect employee classifications
One common mistake made in the business world is to misclassify employees — either on accident or on purpose to avoid paying insurance premiums and other benefits typically available to salaried staff. Misclassifications like this — whether intentional or not — cheats employees out of benefits and fair pay and can result in hefty government penalties.
Correct classification is mandated under The Fair Labor Standards Act (FLSA) — the federal law that sets mandates around minimum wage, overtime, and recordkeeping. FLSA violations can range from $2,000 on up per violation per employee.
The state of New Jersey also passed the New Jersey Insurance Fraud Protection Act to address intentional misclassification issues. The first violation alone can dole out up to $5,000, giving multi-locational businesses even more motivation to correctly classify employees the first time.
If your business operates locations in multiple states, your HR department needs to be familiar with the minimum wage in each area. In 2022, there are already 21 states that have increased their minimum wages, including:
- New Jersey
- New Mexico
- New York
- Rhode Island
- South Dakota
In addition to maintaining compliance with the local legislation, a hotly debated issue in the HR realm is compensating employees for remote positions. There is not a consensus on whether pay rate should be based on the residence of the employee or the location of the office, but this obviously can create inequitable salaries for the same type of employees.
Failure to file required forms on time
The federal government requires you to report all new hires to your state 10 to 20 business days of your new hire’s start date. Additionally, you’re required to meet several quarterly and year-end payroll tax filing deadlines in order to avoid potential audits and fees. These include:
- Form 941 filings — due on the last day of the month following the end of the quarter
- State quarterly filings — most are due on the last day of the month following the end of the quarter
- Year-end deadlines for distributing W-2s to your employees, 1099s to your vendors, and filing 1096 and 1099 forms with the IRS
Failure to maintain employee records
FLSA also requires you to maintain payroll and employee records — everything from the employees’ name, address, and SSN to total wages earned to hours worked — for specific time frames. Regulations around recordkeeping timing include:
- You must store all payroll records for at least three years after the last entry date
- You must hold onto all employee records for four years after the employee leaves the workplace
- If you employ 50 or more workers, you also must keep records regarding any employee leave (e.g., medical leave, family leave)
- Some states may also require you to keep records for up to seven years
Again, FLSA fines can vary but are often issued on a per employee, per violation basis which can add up quickly.
Remaining compliant is hard work — but it can be easier with a payroll tool that integrates with other systems in your technology stack. Integrated hiring and HR software, like Hireology’s powerful all-in-one platform and Netchex, allows for seamless data transfer during the new hire onboarding process and includes built-in automations that ensure you never commit a payroll violation. To see the difference Hireology + Netchex can make for your business, schedule a 1:1 demo today!