Employer Payroll Obligations: Know the Law

The rise of payroll processing companies over the last several decades is a reflection of how complicated payroll has become. Between employee expectations and state and federal laws, managing payroll for small businesses can be a time-consuming enterprise that robs a company of resources it would rather dedicate to meeting customer needs. Small business payroll services are a very attractive option for addressing the hassles of payroll.

When a small business chooses to outsource payroll, legal compliance tends to be less of an issue inasmuch as service providers have to be competent in federal and state laws themselves. Companies that handle payroll in-house are in a different situation. They need to know all federal, state, and local laws that apply to them and their employees. Not fully understanding legal obligations can create headaches the small business owner does not need.


Minimum Wage Laws

The current federal minimum wage is set at $7.25 per hour for non-tipped workers and $2.13 for tipped workers. Most states have their own minimum wage laws in place as well. There are even local municipalities that have decided to establish minimum wage requirements. What must be understood is that minimum wage laws vary from state to state and, in some cases, from one municipality to the next.

For example, Alabama's minimum wage is $7.25 per hour while California's is $10.00. In 2015, the city of Seattle instituted a local minimum wage that will gradually reach $15 per hour for almost all workers. New York City is considering a similar increase for certain kinds of workers, including those in the restaurant industry.

Overtime Laws

The laws regarding overtime are more far-reaching inasmuch as these are governed by the U.S. Department of Labor. As you may know, the Department is set to implement a new rule regarding overtime as it applies to salaried white-collar workers beginning December 1 (2016). This is a big one. It affects almost all salaried professionals earning $47,476 per year or less.

Payroll Tax Laws

Employers are required by both federal and state law to withhold payroll taxes from employee paychecks and pay those taxes on their behalf. They are also required to submit their portion of Social Security and Medicare taxes at the same time. Not understanding the correct application of payroll tax laws could result in hefty fines and penalties assessed by the IRS and state tax collecting authorities.

Frequency of Pay Laws

Laws controlling how frequently employees are paid exist at the state level as well. Most employees are paid weekly or biweekly, but there are circumstances that might dictate some other arrangement. It is possible to pay on a monthly, seasonal, or even a daily basis.

Health Insurance Law

With the implementation of the Affordable Care Act comes a whole slew of additional regulations employers have to comply with. ACA compliance is now a major factor motivating companies to seek out small business payroll services rather than continuing to do things in-house. The good news is that the IRS has been lenient about ACA compliance to date. The bad news is that their leniency will not last forever.


The myriad of laws that regulate payroll processing can make paying employees a challenging thing to get right. Complicating matters is the reality that those laws rarely stay the same for any length of time. So keeping up with changes in the law is a priority.

Are you a small business owner feeling bogged down by payroll? If so, let us help. Let us handle the stress of payroll while you focus on what matters most - your business. Learn more now >>