Payroll Compliance Checklist for 2024

One of the most important tasks that every business, whether big or small, must perform is processing the payroll. It is the most critical function that contributes to employee satisfaction and retention. Payroll processing is a daunting task, especially for the bigger organizations with a greater volume of employees. What’s the primary objective of payroll?

The accurate, timely payment of salaries, adhering to the compliance requirements. Every company, in order to run a successful business, must ensure compliance. Ensuring compliance is not just a necessity but is essential for the legal and ethical functioning of an organization. Before we get into the payroll compliance audit checklist, let us first understand why payroll compliance is essential.

What is Payroll Compliance?

Payroll compliance is the adherence to all the rules and regulations pertaining to payroll in the respective jurisdictions. If you have a business set up in multiple countries, the complexities of payroll compliance increase too since regulations and laws of different countries must be considered and adhered to. Failure to adhere to laws and regulations can lead to non-compliance and cause unnecessary hassle, heavy fines, and brand damage.

Key considerations for a compliance checklist before running payroll

There are a whole lot of considerations to factor in, before processing payroll. There is a checklist of requirements that need to be met in order to maintain compliance. They are-

Setting up of the payroll

To process payroll, you first need to set up a proper compliance process. Businesses with multi-country payroll operations can either establish their own legal entities in each geography and set up a proper local payroll, register as a Foreign Employer and run a non-residential payroll, use an Employer of Record (EOR), or set up a shadow payroll for short-term employee assignments.

Registration with local authorities

If your organization is expanding to new locations with new payroll setups, you must register with the local authorities to get all the necessary identification numbers and be able to run your company compliantly. The authorities’ you need to register with include tax authorities, social security bodies, and other government agencies.

Payment infrastructure

If you are a company operating in multiple countries, then make sure you have a proper payment infrastructure. Paying international employees can get tricky as there are many rules and regulations to abide by, and different countries have different rules regarding whether businesses need an in-country bank account to pay local employees, which currency to use for paying wages and salaries. If you are paying employee salaries in currencies other than the local one, you need to keep an eye on foreign exchange control.

Pay schedule

Now that you have created a compliant payment infrastructure, you need to make sure the pay schedule meets the legal requirements. This refers both to the pay period, which can be monthly, semi-monthly, bi-weekly, or weekly, and the specific pay day. Many countries have rules about how often employees need to be paid and by what day of the month funds need to be made available to employees.

Compensation laws

Before you start processing payroll in a new location, set the wages and salaries for your workers. Other than considerations regarding the competitiveness of the salary packages, the offered compensation needs to be in line with local laws. This includes minimum wage regulations, special regulations for certain industries and professions and equal pay legislation. 

Employee classification

Classifying employees correctly is a crucial part of payroll compliance. Misclassification can lead to incorrect payments to the employees as the taxes to be deducted varies from one type to the other. Workers can be classified as full-time employees, independent contractors. But since the guidelines as to what sets the two statuses apart differ from one country to the next, it is essential to have a country-specific checklist at hand and carefully examine each worker’s classification status.

Statutory benefits

Employee benefits are an important part of the overall compensation package. Statutory benefits represent an important payroll compliance aspect. Not offering employees all the benefits they are legally entitled to will result in hefty fines.

Data protection

Payroll data contains a lot of personal information which is to be kept confidential and is therefore classified as highly sensitive. In order to prevent data breaches, organizations must set up a secure payroll system that uses encryption to protect data during transfers and storage.

What factors should be considered during the process of running payroll?

Adherence to Labor regulations

There are certain regulations as to how many hours an employee should be working. In regarding to this, you must make sure that the workload is within legal limits. Most countries regulate how many hours employees are allowed to work within one week, how many hours of rest they need to have, and how much overtime work is permitted.

Payroll tax calculating, withholding and filing

Calculating, withholding, and submitting the right amount of taxes is an essential part of payroll compliance. In order to maintain a compliant payroll, businesses must calculate payroll taxes based on the updated tax rates and remit the withheld amounts to the respective authorities on time.

Payslip distribution

Providing payslips to employees is mandatory. Some of the particularly important aspects to be considered while distributing payslips are:

• to contain all the legally required information
• the payslips must be in digital or on paper, depending on the country-specific rules.
• they need to be distributed in a way that ensures the information remains confidential.

Accurate and timely payment

After the actual payroll processing, organizations need to make sure that the payment goes through correctly. Make sure that the payment is issued with enough lead time to guarantee the money hits the employee’s bank account on pay day.

What factors should be considered post running payroll?

Once you pay the employees you may think you are done with payroll process, but it does not end there. There are certain procedures you must follow post the payroll processing. They are-

Payroll reporting

As part of payroll reporting, Income tax other payments must be made in an accurate and timely manner. Businesses must file quarterly or annual reports and fulfil additional statutory reporting requirements. Meeting the deadlines when submitting these reports is crucial to avoid fines and non-compliance.

Payroll recordkeeping

Organizations are required to keep detailed records of all their payroll activities. Two of the most important aspects to keep in mind when it comes to payroll records are:

• the payroll documentation needs to be complete and contain all the required documents.
• records must be kept at least for the minimum duration required by law.

Of course, it may sound quite easy and straightforward, but it can quickly become quite a challenge when different authorities have different rules regarding how long certain payroll records must be kept. Storing payroll records digitally is extremely crucial.

Tax and legal changes

Labor laws and taxation rules are constantly changing. If you want to make sure your global payroll remains compliant, you need to keep track of the changes in the respective countries and implement the changes in the payroll system.

Employee classification review

Organizations need to conduct regular reviews to reevaluate the classification of their workers. This can be easily done if you have an employee classification checklist. The information then needs to be updated in the payroll system.

Preparation for potential audits

Compliance audits in payroll happen more often than you might think. Businesses must be always prepared to face audits. This means verifying that all the documents and paperwork is in order after each payroll run.

Payroll Compliance Checklist in India

If you are a company operating in India, there are several Acts set by the Government, for the safety, welfare, and wellbeing of the employees, that every company must follow. Here is a payroll compliance checklist that you must follow-

1. Employee Provident Fund (EPF) Act, 1952:
2. Employees’ State Insurance (ESI) Act, 1948:
3. Professional Tax (PT):
4. Income Tax Act, 1961:
5. Payment of Gratuity Act, 1972:
6. Payment of Bonus Act, 1965:
7. Minimum Wages Act, 1948:
8. The Equal Remuneration Act, 1976:
9. Maternity Benefit Act, 1961:

Wrapping up

As a business, your first order of priority is to do right by your employees and to see this through you must ensure that you follow all the rules and regulations within the local, state, and federal jurisdictions. A well- designed payroll processing checklist will not only make sure that your payroll compliance is in place, but can also streamline your payroll process, minimize errors, and increase the efficiency of your payroll team.

As a leading payroll company in India, Alp Consulting has helped various Fortune 500 companies with their payroll challenges. If you are looking for someone to handle your payroll efficiently, contact us today and we will provide you with the right payroll solution for your business.