Payroll Compliance Checklist

Payroll compliance is crucial for businesses to avoid legal issues, fines, and more. To ensure your company meets all regulations from the federal, state, and local government, follow this payroll compliance checklist to reduce risk and maintain compliance.

(For a printable version, check out our Payroll Compliance Checklist PDF! Or check out our deep dive into payroll compliance for more information.)

Set up Payroll for New Hires

• Obtain completed W4 and I9 forms, along with any state-specific tax forms
• Verify accuracy of social security numbers
• Collect and confirm direct deposit authorization forms
• Enter employee information into payroll and HR software

Termination and Offboarding Compliance

• Ensure you’re meeting state-specific requirements for final paycheck deadlines
• Confirm accurate payout of final wages and, if applicable, severance and any unused PTO
• Share information about COBRA benefits (if applicable)

Verify Employee Classification

• Review IRS guidelines on worker classification. Ensure employees are correctly classified as W2 (employees) or 1099 (independent contractors)
• Keep records of all contracts and documentation for both classifications

Comply with Federal and State Tax Laws

• Confirm proper withholding of FICA and FUTA federal income taxes
• Stay current on both federal and state payroll tax requirements
• Confirm your payroll tax payment schedule (monthly, quarterly, or annually per IRS regulation)

Follow Wage and Hour Laws

• Comply with FLSA requirements for minimum wage and overtime
• If your state differs from FLSA requirements for minimum wage and overtime, ensure compliance with the state’s regulations
• Meticulously track employee hours (including overtime if applicable)

Ensure Accurate Payroll Calculations

• Regularly audit employee pay rates, bonuses, and deductions to ensure accuracy
• Maintain consistent pay schedules
• Make note of any bank holidays that would affect payroll processing and plan accordingly

Pro Tip: Use payroll software and/or a professional service to minimize errors.

Manage Payroll Deductions and Benefits Compliance

• Withhold Medicare, social security, and any retirement contributions (if applicable)
• Deduct employee benefits (e.g., health insurance, 401k) and garnishments

Maintain Payroll Records and Documentation

• Follow IRS and DOL guidelines on how long to store payroll records (4-7 years)
• Ensure records include all required information, like wages and tips, employment dates, and copies of tax forms like W2 and W4

Meet Tax Filing Deadlines

• Confirm submission dates for all year-end and quarterly filing requirements
• Set reminders to ensure timely submission—and avoid late penalties

Comply with Pay Transparency and Reporting Requirements

• Provide employees with detailed pay stubs showing earnings and deductions (Pro Tip: Use a payroll software with an employee portal to provide more transparency for employees and less admin workload for your payroll and HR teams.)
• Accurately track and record employee time to comply with overtime laws
• If required by your state, ensure compliance with pay transparency laws in job postings

Account for Remote and Multi-State Employee Requirements

• Determine which state’s payroll tax laws apply for each remote employee
• For employees who work across multiple states or localities, determine which regulations apply
• Verify any multi-state withholding
• Verify unemployment insurance compliance for multi-state or remote employees
• Confirm compliance with state-specific sick leave laws

Handle Payroll Disputes and Employee Inquiries

• Establish a clear process for payroll dispute resolution
• Protect your business by documenting all payroll inquiries and resolution outcomes in case of audit
• In the event of overpaid or underpaid wages, ensure a timely correction

Stay Current on Regulatory Changes

• Regularly check for any updates to local, state, and federal labor laws (many agencies have newsletters or social media accounts to help with visibility)
• As changes are made to laws and regulations, ensure payroll policies are updated to align with the most current iteration
• Ensure payroll and HR teams are trained on new compliance rules

Conduct Regular Internal Payroll Audits

• Schedule internal payroll audits at regular intervals to detect errors and gaps in compliance
• Set a regular cadence for reconciling payroll reports and bank statements

Automate and Outsource Payroll Where Needed

• Invest in reliable payroll software that can automate regulation updates
• Save time and admin budget by automating recordkeeping, payments, and tax calculations
• If your business has any uncertainty around payroll compliance, consider outsourcing payroll for expert management

Payroll Compliance Checklist Download

Ensuring payroll compliance requires diligence and the right tools. By following this checklist, we hope we can help you reduce errors and meet your business’s legal obligations.

Download this content as a printable PDF for a quick reference guide to keep your payroll and HR compliant year-round!

Checklists and Resources

For more helpful checklists and resources, check out these articles:

• Year-End Payroll Checklist: Stay Compliant and Prepared
• How to Read a W2 Form: What Do Those Boxes Mean?
• HR Compliance Checklist (coming soon!)
• Onboarding Checklist (coming soon!)