2023 Payroll laws and regulations

Whether you’re just starting your small business, hiring new employees, or expanding your organization, it’s always smart to read up on payroll laws and regulations. Payroll laws exist to protect both workers and business owners and ensure that workers are paid fairly and promptly for the labor they provide.

Our guide will explain the basics of payroll regulations: what they are, what types exist, and how they apply to your business. We’ll also review a few tips and tools that you can implement in your workplace to help stay on top of all the payroll laws that may apply in your state and your industry.

The topics we will cover include:

• What are payroll regulations?
• Types of payroll laws
• Compensation requirements
• Pay frequency requirements
• Workers’ compensation
• Employment taxes

• What is payroll compliance?
• How to ensure your business complies with payroll laws
• Manage payroll and remain in compliance with QuickBooks

Keep reading for an introduction to payroll laws, or click on one of the links above to jump straight to the section that answers your question.

What are payroll regulations?

Payroll regulations are laws put in place by governments to ensure that business owners pay their workers fairly, promptly, and in full. The exact regulations a business may need to adhere to can vary significantly by state, county, and city. However, it is always business owners’ responsibility to ensure that they remain in compliance with whatever regulations may exist in the places they operate. This applies even if their business operates in multiple places.

Payroll laws vary widely, and different laws may apply to farm labor contractors than apply to factory workers with collective bargaining agreements. Examples of payroll laws include:

• Minimum wage requirements
• Prevailing wage requirements
• Promptness regulations
• Overtime
• Vacation time
• Sick time
• Maternity
• Paternity leave

Payroll regulations may also include tax requirements for filing and withholding.

New to running a business with employees? Read our guides that cover the basics like “What is payroll?” and “What are payroll expenses?”

Types of payroll laws

As a business owner or manager—or as a worker looking to understand your rights—you should be aware of the different types of payroll laws. It should be noted again that payroll laws can vary depending on the state or city you operate from. Be sure to research payroll laws in your area before hiring any employees.

Many common payroll regulations can be broken down into the following categories.

Compensation requirements and paycheck laws

One of the biggest categories of payroll laws is compensation requirements. Here are a few to keep in mind ad research further:

• Minimum wage: The Fair Labor Standards Act (FLSA) of 1983 established a minimum wage in the U.S. Today, the federal minimum wage is $7.25 an hour. However, because this is far too low for anyone to live on, many states have voted to raise their minimum wage. So, while some states only require that employers only pay their employees the federal minimum, states like California have almost doubled this to $14 an hour.
• Overtime:  Overtime laws can also vary by state. However, most states require that employees who work longer than a traditional eight-hour workday must be compensated at a higher wage rates for those hours. Most often, this is time and a half. So, an employee earning $10 an hour would earn $15 an hour for the time they worked past their eight-hour shift. This is federally mandated as part of the FLSA, and usually applies to workweeks in addition to individual workdays.
• Paid time off: Most state laws require that employers offer some form of paid time off . That might include standard sick days and paid time off for vacation, but can also include extended medical leave, parental leave for workers with new babies, and bereavement. Some governments may also require employers to pay out employees for unused time off if they quit without using it.
• Equal pay:  Federal, state, and local laws protect populations that are often discriminated against in employment contexts. Businesses may not discriminate based on gender, religion, race, ethnicity, national origin, age, disability, or any other protected category. Employers are not permitted to alter wage payment to employees based on any of these categories.
• Final pay:  Laws also require employers to pay their employees out for unused paid time off, or severance in the case of layoffs. Be sure to check local laws to find out what layoff and other final pay requirements are for your industry.

Violating any of these labor laws could get you in trouble with the U.S. Department of Labor (DOL) and may put your business at risk. As such, it’s imperative that you maintain compliance. It’s also good for your employees. Just like child labor laws exist to protect people, so do laws regarding minimum wage, prompt payday, and sick leave.

Are you hiring workers from across state lines or overseas? Be sure to read our guides on paying international employees and payroll for remote workers.

Pay frequency requirements

Many states have enacted laws ensuring that workers are paid promptly and at regular intervals. Employers must pay employees on designated dates. Furthermore, many states require that employers pay employees at certain frequencies, like twice a month, or at least once a month. This is part of the reason the government issued the Paycheck Protection Program (PPP) during the COVID-19 pandemic, to ensure employees didn’t have to go without pay.

If you’re not sure how often you’re required to pay workers, be sure to look into your state’s laws regarding pay frequency. Workers have a right to a frequent payday and should be made aware of both the gross pay (before tax withholdings and other garnishments) and net wages (pay after taxes).

Workers’ compensation

Every state in the U.S. requires some form of workers’ compensation for workers who are injured on the job. Jobs with a high frequency of injury, like construction or fishing, should prioritize understanding what their workers’ compensation requirements are.

In most cases, workers’ compensation will require employers to pay their employees for time they had to miss at work due to their injuries. They may also require employers to pay for medical expenses an injured worker faces. Workers’ compensation insurance can help businesses manage and protect themselves from overextending costs due to workplace injury.

Employment taxes

Employers are typically responsible for collecting and filing income taxes from employees on a monthly or more regular basis. Taxes for Medicare, Social Security, unemployment taxes, and income tax must be filed when needed, and they may need to be filed with both the state and federal governments. Forms may also need to be submitted on a yearly basis.

Note that employment taxes filed by employers differ from the yearly taxes that workers must file. If you are a worker, your employer will withhold a portion of your paycheck to pay your taxes for that pay period, but you will still be responsible for filing your taxes at the end of the year.

What is payroll compliance?

Payroll compliance simply means following any federal, state, or local laws that may apply to how your employees are paid. Remaining in compliance with payroll regulations is critical. Failing to follow payroll laws can lead to legal troubles and potentially being put out of business—and that’s on top of hurting your valued workforce.

While the idea may be simple, payroll compliance can be more complicated if you run business operations in multiple states. After all, different localities may have different overtime pay laws, payroll frequency laws, and minimum wage requirements. That’s why it’s crucial that you know how to ensure your business remains fully in compliance with all applicable payroll laws.

How to ensure your business complies with payroll laws

First, there are steps that you must take to ensure you are in compliance with federal payroll laws:

1. Obtain an Employer Identification Number (EIN).
2. Find out if you require state or local tax identification.
3. Choose between hiring independent contractors and hiring employees.
4. Ensure that new hires submit a completed W-4 form.
5. Schedule pay intervals to ensure that tax withholding is coordinated for the IRS.
6. Make a holiday, vacation, and leave compensation plan.
7. Payroll administration can be done in-house or through an outside agency.
8. Determine who will be in charge of your payroll system.
9. Determine which documents must be kept on file and for how long.
10. Report payroll taxes on a quarterly and annual basis as appropriate.

Next, keep in mind that state and local laws apply too:

1. Learn what the state and local minimum wage requirements are and ensure you are paying your workers above that minimum.
2. Discover your state tax obligations, and remember to pay when taxes are due.
3. Keep track of overtime pay laws, and pay workers for any overtime work they perform.
4. Tip laws can vary significantly between states; if you work in a tipped industry, be sure to learn and comply with the applicable laws.
5. Remember never to discriminate against any protected class when determining pay.

One way to more easily ensure that you remain in compliance with payroll rules for employers is to use professional  payroll services or software.

Manage payroll and remain in compliance with QuickBooks

Software like QuickBooks Payroll allows you to easily track time, fill out and submit forms, and manage payroll with ease, all in one place. You don’t have to manage each of your payroll obligations across different software options or spreadsheets. QuickBooks Payroll lets you stay on top of your payroll records and other business responsibilities with a quick and intuitive dashboard.

A few of the benefits of QuickBooks Payroll include:

• HR support
• Workers’ comp management
• Health benefits management
• 401(k) plan administration

Whether you need help with recordkeeping, accounting, the IRS, Social Security, exemptions, or labor laws, QuickBooks is here to help you remain in compliance. Sign up today to see how QuickBooks can elevate your business.