The Ultimate Payroll Compliance Guide: Step-By-Step


Himanshu Singh

Senior editor

Parul Saxena

Chief editor

Last updated: May 21, 2021


Qandle : No. 1 In Payroll Management Software

Payroll is a term that is associated with several types of operations. It means paying your employees, calculating taxes, choosing a payroll schedule, and keeping a record of employees’ earnings. 

Looking for Payroll Software? Check out SoftwareSuggest’s list of the best Payroll Software solutions.

There are specific regulations governed by federal and state law. It covers everything from income tax to treating employees fairly and compensating them well for their overtime. That’s where compliance comes in. 

Compliance is one of the many challenges faced by the HR and payroll department. It may not be a company’s intent to break these laws, but without the necessary protection, it can easily slip through the cracks. However, using solutions like HR software that already comes with compliant modules can help you deal with it. 

While an effective payroll software system can help to boost employee morale and enhance your company’s reputation, mistakes in compliance can result in punitive penalties. And no business would want to be exposed to such financial as well as goodwill risks.  

What Is Payroll Compliance? 

Payroll Compliance

The word ‘compliance’ means adherence. Every company is subjected to payroll compliance requirements as laid out by both federal and state laws. 

Now, payroll compliance is nothing but a set of procedure that goes into the generations of payroll and other related processes. There are certain aspects that you need to consider every time you run a payroll — be it monthly, quarterly, or annually. 

It is a continuous part of the employee life cycle — from the day they get hired to their last day of work. In short, payroll compliance is the legal framework that a company should adhere to in dealing with its employees.

Why Do We Need It? 

In this ever-changing landscape, the complexity of doing business is only increasing. It has become more challenging to adhere to all the rules and regulations while also coordinating with the operational aspects of the business. 

Many organizations, in fact, hire statutory compliance experts to help them stay up-to-date with continuously changing laws. They have a deeper understanding of how these statutory laws work and help you avoid hefty penalties and fines. 

Companies who provide services on statutory compliance management streamline your company’s process — from the daily operations to the filing of reports when prescribed. 

One interesting fact is that statutory compliance for any company — be it a private limited company, LLP, or partnership firm — remains the same. Every organization that hires employees must comply with the laws.

Why Is Payroll Compliance Important? 

Payroll compliance is a must for all businesses. It ensures that all employees are treated and compensated fairly by management. Plus, the compensation is fairly calculated and distributed among employees, and much more. Managers who deal with payroll should be well-versed and proficient in dealing with the laws and regulations. 

Did you know that as many as one in three small businesses are penalized for incorrect payroll? Mainly because they are not well-informed about employment laws, reporting rules, and always changing compliance regulations. 

There are many advantages for both employers and employees by complying with regulations. 

Benefits for Organizations

Payroll Compliance

  • Protects from unreasonable trade union demands

Trade unions are voluntary organizations that represent workers’ interests at work. Different laws in different countries regulate them. For instance, there is a Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) in Britain. 

The primary purpose of the union is to regulate employee relations with an employer through collective bargaining and consultation. Both employees and employers have duties to perform. For example, employers must accept employees’ membership or non-membership of a trade union. And, they can’t make unreasonable demands on staff working hours. 

Similarly, employees need to make sure that they don’t engage in unlawful picketing and only act in good faith if making any company disclosure. 

But there are times when employees start to demand unreasonable wage hikes or other benefits. In such cases, payroll compliance can protect organizations from such situations and have a strong case against trade unions. 

  • Protects from paying penalties or fines

Payroll compliance helps organizations to accurately and timely pay their employees. 

There are many cases where employees are underpaid, or companies fail to compensate them for overtime. In such cases, if an employee files a lawsuit, company owners are penalized with stiff fines. And when the circumstances are severe, employers also suffer imprisonment. 

Not just fine, but it can also have a substantial adverse impact on brand reputation. No talents would like to come to work for such a company and soon, it will start losing its market share value. 

Though not every company makes mistakes deliberately, it is easy to fall to prey. 

Benefits for Employees

  • Ensures that employees are paid fairly

Laws like the Minimum Wages Act, 1948 governs the wage rate in India. Such laws fix a certain minimum wage rate, which is determined by both the Central Government and the Provincial governments. The amount depends on the cost of living in the region. 

The minimum wage rate is established for each occupation, sector, and region. It can be fixed by hours, months, days, or any other wage period. 

Such compliance ensures that no employees are underpaid for the work they perform. In case, the companies are breaking laws, they can immediately take the matter to the grievance cells. 

  • Ensures that employees are not overexploited

 There are labor laws that state the maximum number of working hours an employee can work in a day or the whole week combined. Many companies have employees working for long hours or in inhuman conditions. 

Such laws prevent employees from getting exploited in the name of work as well as regulates fair. Payroll compliance keeps companies in check, which otherwise would cause harm to the company — in terms of both reputation and fines. 

  • Ensures that employees are treated fairly

You should know that treating employees fairly is not just another moral responsibility. 

Treating employees fairly in the workplace ensures maximum company growth. Besides, when an employee is mistreated, it results in decreased employee productivity. It impacts your employee turnover rate as well. 

Depending on the severity of the unfair treatment, an employee may also file a lawsuit against your company.

Best Practices for Payroll Compliance

Payroll Compliance

Clearly, there are many risks and benefits involved with payroll compliance. So how do you ensure statutory compliance so that both employees and employers don’t suffer? 

For starters, you can make a payroll compliance checklist specific to your business. The checklist can contain pointers such as consulting each employee on a quarterly or annual basis, specify steps you need to take to stay in compliance with the various payroll-related laws, and more. 

However, the ultimate weapon to simplify your payroll procedure and also monitor your compliance is by using payroll software. 

Payroll software automates and streamlines every payroll activity. It also acts as a central database where all the information is stored and helps accurately calculate and process employee paychecks on time. In many cases, the software also files taxes for the organization. You will find a variety of payroll software in the market. But the best ones are tuned to stay compliant with the latest laws and regulations. 

Without a doubt, investing in payroll software can benefit your business in the long run. 

Bottom Line

At first, payroll compliance may seem a bit overwhelming, surrounded by so many laws and regulations. However, with time and practice, once you start to get the hang of it, running your business will seem like a cakewalk.

Himanshu Singh is a Marketing Specialist at SoftwareSuggest, He is well versed in software platforms like eCommerce, project management, document management. He is also interested in domains like Machine Learning and Semiconductors. In his spare time, he enjoys Guitar, Badminton, and Photography.

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