Top 5 Payroll Tax Tips for Employers
- Schedule and complete payroll data integrity audits (each payroll, quarterly and annual)
- Schedule and complete regular employee data integrity audits – at least 2x per year
- It is the Employer’s responsibility to withhold and pay all mandatory payroll taxes timely.
- Review Employee Tax Setup using the APA’s multi-state taxation guidelines.
- Use a reputable Payroll Provider
Payroll Data Integrity Audit
A regular payroll data integrity audit verifies that your business is paying employees accurately, timely, and in compliance with tax jurisdictional laws.
- Validate all employees that should be paid, are paid
- Complete a payroll reconciliation before every payroll run to prevent errors
- Reconcile payroll records with tax return documents
- Ensure all required documents related to payroll are stored according the federal and state department of labor laws
- If discrepancies are found, identify areas to improve the payroll process
Employee Data Integrity Audit
Employee data integrity audits are related to payroll data integrity audits. Employers can use these steps as a guide to perform this task. It is recommended to have this done at least once per year, if not more frequently.
- Confirm all everyone on your employee list is an “real” employee
- Confirm Pay Rate/Salary amounts are correct
- Review employee tax configuration to ensure each person has all of their applicable taxes. This includes employee and employer taxes.
- Engage employees to confirm their demographic information (Name, Address, SSN, DOB, etc.)
Employers withhold and pay mandatory payroll taxes
Employers calculate and withhold payroll taxes on behalf of their employees and pay it directly to the tax authorities. This includes federal, state, local, and additional taxes like disability and paid family leave. Most tax authorities will mandate the employer pay all tax liabilies, even if they allow a portion to be withheld from employees. Each tax may have its own requirements for payment and filings. Employers are responsible for reviewing the payroll tax laws in each jurisdiction they operate in.
Multi-State Taxation Guide
With many having to switch their employees to remote status, employers had to figure out if they were complying with state regulations on employee payroll taxation. In general, most employers considered where an employee lives or works as the only factors. The American Payroll Association’s (APA) 32nd Annual Congress held a virtual workshop called “Multi-State Taxation”. According to the APA, there are four tests that should be used to determine which state to tax employees.
A brief description of each test is listed below:
(1) Where the individual’s work is “localized.”
- a. Services are considered localized within a state if the service is performed entirely within such state. If the employee’s services are not considered localized, then the employer should look to one of the following three factors.
(2) Where the “base of operations” is.
- a. A base of operation can be the place where an employee reports to work, has an office, receives instructions, mail, and supplies, or keeps business records. If the employee’s services are not localized and the employee does not have a base of operations the employer should look to one of the following two factors.
(3) Where the place of direction or control is.
- a. If the employee’s work is not localized and there is no base of operations, but there is direction or control in one of the states where the employee performs services then the entire service should be reported to this state. A place of direction or control refers to a facility from which the employer can exercise immediate control over the employee’s services. If there is no place of direction or control, localized services, or base of operations, then the employer should look to the following factor.
(4) Where the employee’s place of residence is.
- a. In rare instances where none of the three previous factors can be applied the state of the employee’s residence will have jurisdiction.
Use a Reputable Payroll Provider
Do not allow the complex topic of payroll and taxes block you. Hiring a reputable payroll provider that can handle your payroll and tax needs is highly recommended. Please contact PeopleStrategy to learn more. We help the bond between payroll and tax remain accurate and compliant.