Blog Post
July 26, 2021

Retailers should be aware of these eight payroll compliance pitfalls

Frequent changes to payroll, tax, and labor laws can make it difficult for employers to manage their requirements for payroll and maintain a consistent pay experience for their employees, especially considering the pandemic. Here are several common payroll issues retailers should be aware of.

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The complexities of payroll – particularly in the often-volatile retail industry with seasonal, part-time, and full-time workers – are manifold, and administrators must keep on top of legal and practical changes to remain compliant. These complexities have only been exasperated due to the ever-changing retail landscape due to the pandemic.

Taxes and benefits must be properly deducted and paid on time, wages need to be computed properly, and records must be kept for each employee – all the more complicated now due to closing and reopening, and overall stress the industry has been under during this global health crisis. Failing to do so could lead to serious financial penalties.

With 59% of U.S. adults living paycheck to paycheck, and with the overall financial stress of the pandemic, pay accuracy is important for your associates' financial well-being. If the workforce is paid late or incorrectly, retail businesses are at risk. Associates can become disengaged or form a negative perception of the organization. Employers could also face fines, penalties, or other repercussions. Here are eight payroll pitfalls for retailers to avoid.

1. Failing to pay overtime hours

The Fair Labor Standards Act (FLSA) states that covered nonexempt employees must receive overtime pay for hours worked over 40 per week. Complexity is added when applying performance bonuses and any additional state or local overtime laws, such as double time or daily overtime. Inaccurate overtime tracking, rate determination, and calculations may lead to complaints from employees, the consequences of which can be severe. Further complexity is added in response to the COVID-19 pandemic, which is a top priority for the Wage and Hour Division. Federal laws, including the Fair Labor Standards Act and the Family and Medical Leave Act, provide critical workers – like grocery store workers – protections regarding wages and hours worked and job-protected leave triggered by the pandemic.

2. Violating minimum wage laws

Employers must pay covered employees at least the minimum wage regardless of how they are paid, for example, hourly, salary, commission, tipped, etc. Jurisdictions often have different laws pertaining to paying employees. Therefore, employers – especially those that operate in more than one jurisdiction - must consistently review their pay policies to ensure they follow the complex web of minimum wage laws that may apply to them.

3. Misclassifying employees

Misclassification is one of the most frequent culprits. Many mandatory workplace benefits and tax requirements hinge on whether a worker is an employee or an independent contractor. To ensure all workers are properly accounted for in terms of taxes and benefits, they must be properly classified according to applicable law.

4. Miscalculating tax deductions

Federal law requires organizations to withhold several types of taxes from employee wages. These not only include income tax, but also taxes required by the Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), and other laws.

Tax calculations vary depending on the type of tax, jurisdiction, tax rate, type of earning, amount of deductions, etc. It’s critical that employers keep up with the changes to income tax withholding, unemployment tax, and other tax deductions.

5. Violating equal pay laws

The Equal Pay Act requires organizations to pay men and women equal wages for equal work. This makes it illegal for employers to pay women lower wages for jobs requiring the same skills, effort, and responsibility. Most states have also enacted their own equal pay laws, so it’s critical that employers take proactive steps to eliminate pay disparity and to ensure equal pay for equal work.

Fairness and predictability laws

Started in SFO with the Employee Bill of Rights as grown across the nation (Washington, Oregon, NY, etc.) and if unable to automate the compliance of:

  • Equal access to additional hours and shifts
  • Visibility and management of her willingness to be more flexible in her availability
  • Providing varying number of days advanced notice of any schedule change – which can trigger penalty pay
  • Meal and break penalty pay, etc.

6. Running payroll late

Employers not only have the legal obligation to pay the wages that their employees earn, but to pay them on time. Many jurisdictions regulate the frequency and timing of payroll. Additionally, when an employee leaves the company, many states specify the date by which the final check must be paid.

7. Manually entering payroll data

Sifting through a myriad of forms and spreadsheets, or manually entering the same information into several systems, leaves room for error, which creates a greater risk of non-compliance.

8. Managing time and pay in separate systems

Disparate systems are a challenge for many payroll administrators as payroll, time, and HR data are housed in different places. This makes it hard for information to be updated or audited during the payroll cycle, which increases risk that something will go wrong during the “payroll crunch.”

Beyond the cost of payroll fines and penalties

Payroll is complex, and it is crucial to manage it accordingly, especially in these uncertain times.  There is no grey area, it is either right or wrong. Violation of laws such as the Fair Labor Standards Act (FLSA) can lead to serious repercussions for retailers. Inaccurate pay and tax deductions can also have damaging effects on employee retention and engagement.

To mitigate risk of penalties, fines, and employee dissatisfaction, employers must make sure they’re not infringing on their employees’ rights by staying on top of the ever-changing compliance landscape. Combining payroll, employee record keeping, scheduling, and time & attendance in one single HCM system will help administrators manage large amounts of data during crunch time so they can pay employees accurately and on time.

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