Editor's Note: Keep up to date with constantly changing payroll tax laws and trends!

Rena PirsosOverview: A growing employer trend over the past several years has been to integrate payroll within the HR department. So, now more than ever, HR managers need to understand all the complex issues and requirements involved in payroll tax law compliance in order to effectively oversee payroll processing and ultimately avoid costly penalties. This involves managing the following tasks, among many others:

  • Preparing paychecks, which involves calculating employees' gross salary and the amounts to be deducted and withheld from those earnings for federal, state, and local taxes, various health and welfare benefits and for involuntary and voluntary payroll withholdings;
  • Determining the proper method(s) for paying employees, e.g., direct deposit, paper checks or payroll debit cards, based on federal and state wage payment laws;
  • Periodic depositing and reporting of amounts withheld with various government agencies;
  • Recordkeeping and document retention;
  • New hire reporting to state agencies; and
  • Selecting, implementing and managing automated payroll systems.

Trends: The following are just a few of the important issues currently impacting payroll:

  • Final IRS regulations define marriage in gender-neutral terms: The IRS issued final regulations on September 2, 2016, that define the term "spouse" in a gender-neutral manner under federal law for purposes of employer-provided health and retirement benefits and payroll taxes. The regulations follow up on two Supreme Court decisions that have recognized same-sex marriage at the federal and state levels since 2013.
  • State Payroll Deduction Auto-IRAs: Concern over the low rate of retirement savings among Americans and a lack of access to workplace plans for many workers has led some state governments to create their own savings programs that employers are required to administer. For example, California, Connecticut, Illinois, Maryland and Oregon have developed, or are developing, programs requiring employers that do not offer employees other retirement savings arrangements to automatically enroll employees in tax-favored IRAs funded by payroll deductions. In the interest of encouraging retirement savings to protect the economic security of older Americans, the Department of Labor's Employee Benefits Security Administration (EBSA) has issued a final rule guiding states on how to design these payroll deduction savings initiatives to avoid the risk of preemption by the Employee Retirement Income Security Act (ERISA). The final rule also provides guidance to the employers that eventually may be required to offer such programs to employees.

Author: Rena Pirsos, JD, Legal Editor

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