Compliance

‘The dog ate our timesheets’ is a payroll compliance nonstarter

By Rick Bell

Jun. 29, 2020

With the amount of paperwork a business must collect to meet its payroll compliance obligations, it is not uncommon to forget to include important documents.

Whatever the reason — even “the dog ate my payroll paperwork” excuse — will not appease the Internal Revenue Service when it comes to payroll compliance.

The IRS does not suffer fools gladly no matter if Buddy shredded payroll documents like a throw pillow or because an organization failed to properly maintain payroll and tax records.

Such sloppy payroll oversight can be extremely costly for a business, especially if federal and state tax agencies want to see records. Strict payroll compliance is arguably the simplest way to avoid fines and penalties that could cost a business a substantial amount of money.

Crumpling up paper-based payroll systems

Using a manual payroll system means that the department will be awash in paper. Paper can be crumpled up and tossed away. Paper literally gets lost in the shuffle or falls through the cracks. Ink smears when coffee is spilled on paper. The process also is a pain as it means extra time, work and effort to successfully meet compliance protocols.

Yet for some organizations, transitioning from the traditional paper-based process to an online payroll solution remains up for debate. It is hard to argue the benefits of a paper-based system when it is:

  • Prone to human error. A manual payroll process is typically accompanied by aggravated payroll processors who must track down missing timesheets or incomplete time cards, guess at calculation of employee leaves and sort through vague salary data. That often leads to human error, which in turn creates incorrect and inaccurate payments.
  • Ripe for miscalculations. A payroll miscalculation might seem small but it is nonetheless still wrong. Employees may get the incorrect amount. Or — compliance alert — the payroll department might accidentally skimp on taxes. And unfortunately, a payroll miscalculation likely won’t be noticed until it’s too late.
  • A burden on resources. Repetitive processes necessary to maintain a manual payroll system can be tedious and a poor distribution of employee time and energy. Rather than effectively addressing strategic issues, payroll staff must slog through mundane work that affects their productivity and leads to indifferent attitudes.
  • Lacking security. Storing employee information in spreadsheets or worse, on paper-based hard copies, is hardly the model of a secure system. Employees trust their employer with personal data from Social Security numbers to bank account information and ensuring the privacy of that crucial information. Manual payroll processing increases the possibility that the information will seep out and end up being seen by nosy fellow employees.
  • A noncompliance lawsuit waiting to happen. With fair workweek and minimum wage laws shifting, payroll can be caught off guard when an increase takes effect, especially when the change does not occur the first of the calendar year. Overtime miscalculations, misclassification of employees and Fair Labor Standards Act violations all throw an organization into noncompliance as well. To remain in compliance, organizations must be vigilant to check tax rate updates. Missing one update will cause companies to withhold and remit the wrong amounts and can result in fines and penalties.

Organizations running payroll by hand should check constantly for tax rate updates. Missing one update will cause mistakes in withholdings and using incorrect totals that can result in penalties.

Follow the rules

According to Business Management Daily, employers should adhere to these guidelines every payday to avoid penalties.

  • Withhold federal and state income tax based on each employee’s W-4 form.
  • Withhold the employee’s share of FICA.
  • Withhold the employee’s share of state unemployment/disability contributions, as necessary.
  • Figure the amount of FUTA tax and SUTA tax for each employee.
  • According to your tax deposit schedule, deposit via EFT, employees’ withheld income tax, and employees’ and employers’ FICA.
  • Deposit state taxes according to the appropriate schedule and in the appropriate medium.
  • Adjust wages and taxes as discrepancies arise. Look for negative wages. 

A domestic pet has taken on a home. Torn documents on white floor. Pet care abstract photo. Small guilty dog with funny face

A seamless payroll integration solution avoids the headaches and pitfalls associated with paper-based processes. Workforce.com’s platform is designed to keep abreast of labor-law changes and ensure that pay rates are always updated. Integrate Workforce.com’s platform with your payroll system and export workforce data, timesheets and pay rates in one click. The result is less time spent on administrative tasks and more doggone time dedicated to staff focusing on the business.

Rick Bell is Workforce’s editorial director. For comments or questions email editors@workforce.com.

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