Payroll management is the process by which a business manages its payroll— the employees, salaries, hourly wages, processed payments, and taxes relating to payroll. It also includes administration of bonuses and other special instances relating to payments made to employees. Much of payroll processing is regulated and required by the government and regulatory bodies— for example, payroll tax records must be maintained for at least four years after the tax is due or is paid (whichever is later) according to legal requirements.
In fact, there are 20 total unique payroll-related records that must be maintained in order to meet the requirements set forth by the federal government. They are as follows:
Income Tax Withholding Records
Name, address, and Social Security number of each employee
Amount and date of each payment for compensation
Amount of wages subject to withholding in each payment
Amount of withholding tax collected from each payment
Reason that the taxable amount is less than the total payment
Statements relating to employees' nonresident alien status
Market value and date of non cash compensation
Information about payments made under sick-pay plans
Withholding exemption certificates
Agreements regarding the voluntary withholding of extra
Dates and payments to employees for non-business services
Statements of tips received by employees
Requests for different computation of withholding taxes
Social Security (FICA) Tax Records
Amount of each payment subject to FICA tax
Amount and date of FICA tax collected from each payment
Explanation for any difference
Federal Unemployment Tax (FUTA) Records
Total amount paid during calendar year
Amount subject to unemployment tax
Amount of contributions paid into the state unemployment fund
Any other information requested on the unemployment tax return
Payroll management is one of the important tasks a business must handle. It not only affects the direct ability to pay employee salaries, it’s also directly connected to employee loyalty and morale and a company’s overall reputation as an honest and on-the-ball organization. Late paychecks or improperly managed payroll are some of the fastest ways to erode employee trust and motivation.
Meanwhile, payroll management is essential to remain compliant with federal regulations. The way employees are paid, and the way their taxes are withheld and paid to the government, are carefully monitored by the IRS and government regulatory bodies.
Generally, companies use a software program to manage their payroll process. This software should record employee details, help manage and adjust salaries, track work hours for hourly employees, manage paid leave and vacation, determine and issue bonuses, and identify deductions— all while helping keep required records for a company.
A proper payroll management process should also include a process for handling employee requests and complaints relating to payroll as well as transparency that allows employees to access information they need and that’s relevant to them.
Income tax withholding records are any records relating to the calculated withholding of taxes from employee paychecks. Because each employee owes taxes to the federal government on their wages, businesses are required to withhold some of employee taxes and submit them directly to the government after each fiscal year. Keeping careful records of these tax withholdings are essential.
Every employee’s paycheck includes a deduction designed to be paid into their social security, a fund designed to provide for former workers after retirement. Companies are required to keep records on their social security taxes, including the amount of each payment subject to these taxes, amount and date of social security tax collected from each payment, and an explanation of any differences or areas where the figures don’t align.
Federal unemployment tax records are payroll records relating to a company’s unemployment tax payments. Records that are required by the federal government relating to federal unemployment tax include total unemployment tax paid during a calendar year, amount of payroll subject to unemployment tax, amount of contributions paid into the state unemployment fund, and any other necessary information that’s directly requested on an unemployment tax return.
Processing paychecks accurately, effectively, and on-time isn’t just a legal requirement, it’s also essential for keeping employees happy. Nothing makes employees feel more quickly disconnected from their employer’s leadership than late paychecks, incorrect payments, and other issues. Salaries, hourly wages, owed overtime payment, and bonuses should all be verified and included in paychecks where necessary. Meanwhile, necessary tax deductions should be included in paychecks to avoid getting a company (and employees) in hot water with the IRS.
Generally, many companies have a specific role that oversees payroll management—fittingly, the position is usually called the Payroll Manager. Payroll managers are in charge of determining tax deductions and other elements of payroll— including the completing of forms that document payroll taxes and filing W-2s for each employee. Juggling required documents, filing deadlines, and more requires an organized and focused skillset, making payroll tax managers a valuable addition to a business.
Keeping correct, up-to-date, and compliant payroll records is essential. Many of the regulatory standards relating to payroll record keeping were established in the Fair Labor Standards Act (FLSA), which sets forward the requirements for employers to keep accurate records for every non-exempt worker.
Meanwhile, keeping accurate and thorough payroll records is beneficial to businesses themselves. It allows them to have transparency about where their salaries are going, and whether these are equitable and reflect contributions to the organization.
In addition to ensuring that financial information relating to payroll is accessible at all times for regulatory bodies, it’s also important (and legally required) that employees have access to specific information relating to their payroll. These include benefits summaries, 401(k) summaries, check history and deduction totals, direct deposit details, time clocks, and paid time off information.
Other features that employee accessibility features for payroll might include the ability to access and download relevant documents, like tax withholding info and W-2s, change their individual withholding settings, make inquiries, and ask questions relating to their pay.
The more transparent and easily accessible this information is for employees, the more satisfied they’ll be with their payroll experience at a company.
The content found here is for informational purposes only, and not for the purpose of providing advice, including but not limited to, financial, legal, or tax advice. Any opinion found here does not necessarily represent those of BILL.