With a multitude of rules, regulations, and timelines, Payroll is arguably the most complex and highly regulated function for the HR Department.
This page provides an overview of your organization's Payroll compliance requirements, including key requirements, a list of common errors, then a checklist to help you get is all working properly.
Overview Of "Managing" Payroll
Payroll management includes the process of managing employees' earnings, deductions, taxes, benefits, and payments, then properly completing all reporting on a timely basis. This includes:
Calculating wages, overtime, bonuses, and taxable benefits
Processing reimbursements, deductions, and employer contributions
Ensuring compliance with federal, state, and local payroll laws
Submitting accurate payroll tax payments and filings
Maintaining payroll records and documentation
Issuing timely payments to employees
Updating systems when laws or COLA limits change
But payroll management is not just issuing checks. It involves complex issues and a variety of compliance obligations, including:
Multi-state tax rules
Wage garnishment laws
Travel pay reimbursement regulations
InPat/ExPat payroll compliance
State-specific payroll deadlines
Documentation and audit requirements
Top Payroll Compliance Errors And Mistakes
Payroll mistakes can occur at any stage of the process, so payroll administrators must be aware of common mistakes that often occur. Below is a list of the most common problems:
Misclassification of employees vs. independent contractors
Failure to follow the requirements of the plan document
Manual calculation errors
Failure to update tax rates or contribution limits
Overtime miscalculations
Incorrect handling of pre-tax deductions
Mishandling wage garnishments and child support orders
Not accounting for protected leaves (FMLA, PTO, sick leave)
Noncompliance with multi-state taxation rules
Late tax filings or missed deadlines
Late remittance of employee contributions
Outdated payroll systems or incorrect software settings
The information below is a draft checklist for compliance with the multiple rules and timelines for Payroll. Feel free to add or delete as needed to meet your organization's needs.
Plan Setup & Documentation Plan must always operate in accordance with its written terms, so make sure: Written plan document exists and is current Plan document reflects actual operations Summary Plan Description (SPD) created SPD distributed to participants within required timeframe Plan amendments adopted timely
Fiduciary Responsibilities Fiduciaries identified and documented Fiduciaries understand duties (Duty of loyalty, Duty of prudence) Decisions documented (investment, vendor selection) Conflicts of interest avoided
Employee Eligibility & Enrollment Eligibility rules applied consistently Employees allowed to enroll when eligible Auto-enrollment (if applicable) administered correctly Enrollment records maintained
Contributions & Funding Employee deferrals deposited timely Employer contributions made per plan terms Contribution limits monitored Be aware of IRS annual limits Catch-up contributions handled correctly
Vesting & Participant Accounts Vesting schedule applied correctly Participant account balances tracked accurately Forfeitures handled per plan document
Nondiscrimination Testing Annual testing completed (ADP/ACP tests, Top-heavy testing, etc.) Corrections made timely if tests fail Safe harbor provisions applied
Participant Disclosures & Notices Required notices distributed include the Summary Plan Description (SPD), Fee disclosures, and the Safe Harbor notice Notices delivered timely and documented Participants informed of rights and options
Loans & Distributions Loans administered per plan terms Hardship withdrawals comply with rules Required Minimum Distributions (RMDs) processed timely Distributions reported correctly (tax forms issued)
Form 5500 Filing (Annual Requirements) Form 5500 filed annually Filing completed by deadline (with extensions if needed) Supporting schedules completed Filing retained for records
Audit Requirements Plan audit conducted (if required based on size) Auditor is independent and qualified Audit findings addressed
Recordkeeping & Documentation Maintain records for:
Contributions
Distributions
Participant elections
Retain records for at least seven years Documentation audit-ready
Service Provider Oversight Third-party administrators (TPAs) monitored Fee disclosures reviewed Service agreements documented Performance evaluated regularly
Corrections & Compliance Programs Errors identified promptly Corrections made using IRS/DOL programs such as EPCRS (IRS correction program) Documentation of corrections maintained
Cybersecurity & Data Protection Participant data protected Access controls implemented Vendors follow cybersecurity best practices Incident response plan in place
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