Friday Payroll: Your Small Business Compliance Checklist

Payroll compliance

Friday Payroll: Your Small Business Compliance Checklist

It's Friday afternoon, and if you're like many small business owners, you're getting ready to run payroll. Before you hit that "process" button, let's make sure you're staying compliant and avoiding costly mistakes.

Payroll compliance might seem overwhelming, but it doesn't have to be. With the right knowledge and systems in place, you can process payroll confidently every time. Here's your essential compliance checklist:

1. Tax Withholding: Getting the Numbers Right

Accurate tax withholding is the foundation of payroll compliance. You need to withhold:

• Federal Income Tax: Based on employee W-4 forms and IRS withholding tables

• State Income Tax: Varies by state (Texas businesses are lucky - no state income tax!)

• FICA Taxes: Social Security (6.2%) and Medicare (1.45%) from employee wages, plus matching employer contributions

• Additional Medicare Tax: 0.9% on wages over $200,000

  
  

💡 Pro Tip: Use current tax tables and withholding calculators. Tax rates and brackets change annually, so last year's numbers won't work.

2. Deposit Deadlines: Timing is Everything

Withholding taxes from employee paychecks is only half the job. You must also deposit these taxes with the appropriate agencies on time:

• Monthly Depositors: Deposit by the 15th of the following month

• Semi-weekly Depositors: Deposit by Wednesday (for paydays on Saturday-Tuesday) or Friday (for paydays on Wednesday-Friday)

• Next-Day Depositors: If you accumulate $100,000+ in taxes, deposit by the next banking day

  
  

⚠️ Warning: Penalties for late deposits start at 2% and can reach 15% of the unpaid tax amount. Don't let this eat into your profits!

3. Record Keeping: Your Compliance Safety Net

Detailed payroll records aren't just good practice—they're required by law. Keep these records for at least 3 years:

• Employee timesheets and attendance records

• Wage and salary information

• Tax withholding amounts and deposits

• Payroll registers and check stubs

• Employee tax forms (W-4s, I-9s)

  
  

4. Employee Classification: Avoid Costly Mistakes

Misclassifying employees as independent contractors is one of the most expensive payroll compliance errors. The IRS uses three main tests:

• Behavioral Control: Do you control how the work is performed?

• Financial Control: Do you control the financial aspects of the job?

• Relationship Type: Do you provide benefits, written contracts, or expect ongoing work?

  
  

When in doubt, err on the side of employee classification or consult with a professional.

5. State and Local Compliance

While federal requirements are consistent, state and local laws vary significantly:

• Minimum Wage: Some cities and states have higher minimums than federal

• Overtime Rules: Daily overtime, different thresholds, or additional requirements

• Break and Meal Periods: Required breaks vary by location

• Payday Requirements: How often you must pay employees

  
  

6. Year-End Considerations

Even if it's not year-end, keep these requirements in mind throughout the year:

• Prepare for W-2 and 1099 distribution by January 31

• File quarterly payroll tax returns (Form 941)

• Pay unemployment taxes (FUTA and SUTA)

• Reconcile payroll records with tax deposits

  
  

Making Payroll Compliance Easier

If this checklist feels overwhelming, you're not alone. Many small business owners struggle with payroll compliance because:

• Tax laws change frequently

• Penalties are severe and immediate

• Record-keeping requirements are extensive

• Time spent on payroll is time away from growing the business

  
  

💡 Consider Professional Help When:

- You have more than 5 employees

- You're spending 3+ hours per payroll period

- You've received compliance notices

- You want to focus on business growth instead of paperwork

The Bottom Line

Payroll compliance doesn't have to be stressful. With proper systems, knowledge, and potentially professional help, you can process payroll confidently every Friday.

Remember: the cost of compliance is always less than the cost of non-compliance. Penalties, interest, and legal fees can quickly exceed what you'd pay for professional payroll services.

Ready to simplify your payroll process? At Sara's Financial Group LLC, we handle all aspects of payroll compliance so you can focus on what you do best—running your business. Contact us today to learn how we can give you Friday peace of mind.