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.
In addition to understanding the 2023 changes, there are four common wage and hour mistakes employers need to avoid.
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.
3. Non-Exempt Employee Pay for Time Spent in Meetings, Training & Work-Related Travel
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.
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 Actapplies 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.
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.