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Don’t Make These Payroll Compliance Mistakes

By Bill Stephens, CPP on Feb 02, 2023
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Payroll compliance is vitally important to the legal operation of any business. Consistently applied pay policies, accurately calculated overtime and proper FMLA administration all protect your business from legal problems and provide your workforce with consistent compensation. 

There have been a variety of changes to payroll compliance for 2023 that every business should know about and understand:

  • Form W-4 for income tax withholding underwent numerous changes in 2020, such as number of allowances not applicable, and elected allowances not used. The only significant difference in 2023 is a change to standard deductions, as noted on the form's deductions worksheet.

  • The IRS raised the exclusion for elective deferrals on retirement plans from $20,500 In 2022 to $22,500.

  • The total allowable employee contributions for healthcare FSAs increased from $2,850 in 2022 to $3,050 in 2023.

In addition to understanding the 2023 changes, there are four common wage and hour mistakes employers need to avoid.

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1. Misclassifying Employees

The risk of misclassifying employees as independent contractors or interns is made worse by the gig economy. Independent contractors control their own hours and how they perform work, and generally provide their own tools and supplies.

If you as an employer are controlling and directing how and where work is performed and providing equipment but classifying the worker as an independent contractor and not an employee, you need to look carefully at the business relationship. Misclassifying employees as independent contractors can leave your company liable for back payroll taxes, fines and penalties.

2. Adjustments to Salaried Employee Pay

Employers must use caution with exempt employee pay and pay a fixed salary each pay period. This can’t be reduced due to the quality or quantity of work performed and must be the full salary each week work is performed, with a few specific exceptions. Quantity and quality of work issues are performance issues that can’t be addressed by docking exempt employees' pay. 

Exceptions to the no-pay-docking rule for exempt employees include when no work is performed in one or more days; FMLA leave is taken; paid leave is taken for sickness or disability; safety penalties for violating safety rules of major significance; unpaid disciplinary suspension for workplace conduct rules violations such as harassment or workplace violence; and a partial work week during the first or last week of employment.

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3. Non-Exempt Employee Pay for Time Spent in Meetings, Training & Work-Related Travel

Employers must pay for time non-exempt employees spend in meetings and training and on work-related travel. Exceptions include if attendance is voluntary or if the meeting or training is not job-related.

Travel for work, other than a normal to-and-from commute, must be paid. Employers may not deduct for time to travel to different job sites or for out-of-state travel. Exceptions vary by state, so employers must know their state's rules regarding pay for work-related travel.

RELATED: Asleep on the Job - When You Have to Pay Employees for "Unproductive Time" >>

4. Not Paying Attention to Pay Equality

Employers must pay men and women in the same workplace equal pay for equal work. Work has to be substantially similar, and job content – not job title – determines job equality. The Equal Pay Act applies to all forms of compensation, including overtime pay, bonus pay, benefits such as vacation pay, insurance, retirement plans, stock options and travel expense reimbursements. Employers can’t reduce wages to equalize pay.

RELATED: How to Accurately Measure Time & Attendance >>

Employers who handle payroll in-house should consider time-tracking software and outsourcing to automate and eliminate human error in payroll. Businesses can prevent expensive and preventable mistakes on payroll taxes by staying knowledgeable and current on federal, state and local tax laws and using accurate and timely payroll reporting and employee classification.

For more information on how Axcet HR Solutions makes managing payroll easier, visit our website here >>

Payroll Administration: Payroll frustration? We can help.

Written by Bill Stephens, CPP

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