Payroll Compliance Checklist: What You Need to Avoid Penalties in 2023

Filip Dimkovski - TBR writer
By Filip Dimkovski
Nevena Radulović - Trusted Brand Reviews Editor
Reviewed by Nevena Radulović

Published January 21, 2023.

Man in a suit checking a graphic checklist

Payroll compliance is always an important topic for employers, as doing payroll accurately and adhering to all payroll legislation is not only beneficial but necessary for avoiding penalties and fines. In this article, we'll help you understand payroll compliance for 2023 and learn how to avoid potential financial penalties as an employer. Stick around to explore the specific requirements to ensure you're compliant with the latest payroll legislation.

1. Understand Payroll Legislation

Fully understanding payroll legislation is no easy task, as it requires investing a lot of time to ensure you're up-to-date with the latest changes. A good way to stay ahead of the curve and make sure you have a clear understanding of these laws is to attend webinars, seminars, and conferences, as well as follow professionals on social media.

Even though it may be tedious, having a clear grasp of payroll legislation is critical, as violating it can mean facing fines and penalties. Moreover, by managing payroll and taxes correctly, employers can reap all kinds of benefits, including the following:

» Learn whether businesses are legally obligated to run payroll

2. Keep Payroll Records Up to Date

Manually processing payroll can cause a myriad of issues, such as inaccuracies, missed deadlines, and delays. To minimize potential issues, it’s essential to keep anything that affects payroll up-to-date. This includes employee information such as addresses, promotions, changes in hours worked, etc. In addition to this, it’s important to keep a record of all payroll activity and documents.

Although businesses are generally required to keep all payroll records for at least three years, it could even be longer depending on the local rules. Furthermore, documents that involve calculations, such as time cards and deduction information, should be kept for at least two years. By keeping the records up to date, businesses can ensure compliance and have documents to reference in the event of an audit or legal dispute.

» Payroll record retention: see what you should know for IRS compliance

3. Keep Track of Important Deadlines

Businesses often make the mistake of forgetting important deadlines when it comes to filing payroll taxes and other forms. To avoid this, it's crucial to keep a track of all deadlines where they can easily be found by those responsible for payroll. Moreover, ensure your whole team is up to date and that you don't miss a deadline, as this can trigger penalties that an efficient system will help you avoid.

4. Always Make Sure Your Employee Classification Is Compliant

Misclassifying employees as independent contractors is a serious mistake, as only full-time employees have taxes withheld from their paychecks. Independent contractors, on the other hand, file their taxes differently and must be kept separate from employee classification. Mistakes in this area can be quite costly for both workers and businesses, so it's important to correctly classify all employees according to the law to avoid any potential issues.

5. Implement Payroll Automation

As we previously mentioned, manual payroll processing can lead to a lot of errors, which is why it's beneficial to implement payroll automation. Automating the payroll process not only reduces the chances of mistakes but also helps employers by streamlining the process and making it more efficient. Additionally, automatically generated pay slips empower employees, as they receive a clear breakdown of their income, tax payments, pension contributions, etc. This encourages transparency and builds trust between employers and employees.

» Want to streamline your payroll? See the essential policies and procedures to follow

Avoid Penalties Through Streamlined Payroll

Payroll management is a complex task that involves more than just calculating wages. By following the steps outlined in this article, businesses can ensure compliance and reduce the chances of mistakes. From tracking important deadlines to implementing payroll software with all the right features, there are many ways employers can make their payroll processes more efficient and accurate.

» Need help streamlining your payroll? Read TBR's payroll software reviews and find the solution to get the job done.

Can't find what you're looking for?

Our website contains links to product that might contain affiliate links which may reward a commission when you purchased via our links. Our goal is to compare and review the products and services we write about in the best way to help our users. We might not review and feature every product/service in the market.Our service is free of charge. We might make affiliate commissions when you make a purchase via our links. This may influence if and the order of services and/or products that we review. Rest assured, the service providers cannot pay to guarantee any specific placements or get better reviews for themselves.