To conduct payroll processes and pay your nursing staff accurately and on time, you need to keep an eye on ever-changing tax laws and compliance regulations. Health care payroll compliance requires constant diligence because of increasingly complex rules for record-keeping.
However, maintaining compliance is necessary to prevent penalties, fines, and time-consuming mistakes that can affect your facilities' operations and staff morale. That's why it's critical to familiarize yourself with local, state, and federal tax regulations.
Compliance Requirements for Payroll
As a manager or employer at an assisted living or long-term care facility, it's your job to uphold quality care for your residents while also complying with payroll requirements laid out by state and federal laws.
Payroll compliance is an essential part of your staff member's life cycle—from the moment you hire them until long after they've stopped working at your facility. Here are some things you must consider on a quarterly and annual basis, as well as every time you run your payroll for tax purposes:
- Calculating compensation and overtime
- Withholding the proper amount of payroll taxes from wages, including Social Security tax
- Depositing tax liabilities with local, state, and federal agencies
- Filing payroll tax returns
While your payroll compliance is individual to every business, there are some universal regulations you must abide by.
Federal Income Tax
As an employer, it's your job to withhold different taxes from your staff's paychecks, including federal income tax. The IRS determines the percentage and wage bracket method for these taxes, which range from about 10% to 37% across the board. This type of tax is also based on employee exemptions reported on W-4 forms. If you're not sure how much to withhold from a nursing staff member's wages, you can determine federal income tax in the IRS Employer's Tax Guide.
In addition to federal regulations, you must also remain compliant with state requirements for payroll practices. These can be trickier to follow because they vary from state to state in terms of:
- Income taxes.
- Reporting new hires.
- Minimum wage.
- Unemployment tax rates.
- Employee pay laws.
This tax requirement is more challenging because while some states follow the federal income tax code, others charge a fixed rate, generate their own tax brackets, or don't charge income tax at all. How and when you can file your state income taxes also vary from state to state, as well as fees and penalties for noncompliance.
As an employer, you are also required to pay state unemployment tax under the State Unemployment Tax Act (SUTA) that funds your state's unemployment insurance for staff members who have involuntarily lost their jobs. This also differs from state to state. To avoid confusion, it's imperative to stay familiar with your state's requirements.
Employee Benefits and Classification
You must include any taxable fringe benefits, such as mileage, clothing, and moving reimbursements that your business offers in a staff member's pay, withhold taxes for these benefits, and report it correctly on their W-2s.
You must also classify your staff correctly, as hiring employees and independent contractors come with different responsibilities, expenses, benefits, and taxes. This is important for payroll because while you withhold taxes for your employees, independent contractors must complete their own taxes.
When hiring and classifying new staff members, there are plenty of tools at your disposal to help with the process, including:
- Required forms: Ensure you keep up with any necessary onboarding documents, such as state forms, W-4 forms, and I-9 Forms as you file taxes.
- Employment verification (E-verify): This allows you to check staff members' identities and confirm their eligibility to work in the U.S. by matching information from their I-9 Form.
- Social Security Number (SSN) verification: Just as with eligibility, you can verify a staff members' name and SSN using The Social Security Number Verification Service.
The Fair Labor Standards Act (FLSA) is a federal law regarding payroll compliance. This law regulates minimum wage, child labor standards, overtime, and record-keeping. Under this law, you must track and record staff records and payroll for at least three years.
This law also states that unless a staff member is exempt, you must pay them at least the federal minimum wage—$7.25 an hour—and allow them overtime pay, or one-and-a-half times their hourly pay, as well. If your state follows a higher minimum wage rate, you must abide by those regulations. Overtime pay — compensation for working over 40 hours per week — is a vital component of payroll compliance, so it's important to determine which of your staff are eligible and pay them according to the FLSA law.
Some staff who meet specific requirements are exempt from overtime, and you are not required to give them overtime pay. Make sure you identify them correctly with regard to FLSA regulations.
Similar to SUTA, the Federal Unemployment Tax Act (FUTA) requires employers to pay 6% of the first $7,000—the FUTA wage base—of employee wages each year, unless your business is within a state that has state unemployment tax. In this case, you may be eligible for a credit up to 5.4% to lower your FUTA tax rate to 0.6%. Your state's wage base may be different according to certain state laws. You must pay and file these taxes quarterly using Form 940.
The Federal Insurance Contribution Act (FICA) is also a part of payroll compliance and consists of Medicare and social security taxes that you must withhold from your staff members' wages. This law splits these taxes between employers and employees — 6.2% for Social Security and 1.45% for Medicare for each, as of 2023—resulting in a combined tax total of 15.3%.
For this regulation, keep in mind that while Medicare does not have a wage-based contribution limit, the Social Security wage base increased to $160,200 in 2023. You must deposit FICA taxes semiweekly or monthly—depending on your organization—and report them quarterly using Form 941.
Payroll Laws and Policies to Know for 2023
Payroll laws dictate how you pay your staff and how to report the information correctly. As a manager or employer, it's essential to stay up to date with payroll laws and policies to avoid fees, penalties, and lawsuits. As you dive into 2023, it's a good idea to familiarize yourself with tax reporting and deposit due dates.
In addition to the standard payroll compliance legislation you must follow, here are some other laws to pay close attention to:
Pay Staff on Time
Though this might seem self-explanatory, paying your staff late is illegal, so it's important to remember your pay schedule. You must follow your state's minimum pay frequency requirements whether you pay weekly, biweekly, or choose another pay period.
Be sure to also check your state's requirements for final paychecks. While some states give employers until the next payday to pay staff, others require the amount owed up-front at the time of their notice or termination.
Check Payroll Option Requirements
Most employers have the option to pay staff through paper checks or direct deposits. While it's not universally required to pay through direct deposit, this is a much easier way to process payroll and pay staff faster. However, some states have passed legislation requiring that employers offer the option for other types of pay—such as reloadable pay cards. Still, direct deposit remains the most popular and secure way to administer payments, so using payroll software would be especially beneficial in this case.
Manage Court-Ordered Garnishments
If you receive a court order to withhold income from a staff member's paycheck—such as for lawsuits, child support, or debts—you must act immediately to ensure you won't be responsible for paying the funds later.
Common Payroll Mistakes and Consequences
Payroll regulations and taxes are always changing, so it's common to come across a mistake, such as filling out a form incorrectly or forgetting to file on time. However, these mistakes can come at a heavy cost, so it's crucial to familiarize yourself with the most common payroll errors to avoid them in the future.
Staff who have no tax liability in the previous tax year or current year, such as students, those 65 years and older, part-time workers, or seasonal workers, can claim exemption from federal income tax on Form W-4. However, the IRS may want to examine your business's exemption requests to determine their validity. If not, they will send a letter displaying the staff member's income tax withholding rate that employers must follow. Otherwise, you may be liable for back taxes.
Misclassifying Employees and Contractors
Classifying employees and independent contractors correctly is essential because it differentiates those who will have taxes withheld on their paychecks and those who won't. For example, independent contractors pay self-employment tax and employers don't deduct taxes from their pay.
For employees, however, employers would need to withhold required payroll taxes. Sometimes, it can be confusing to determine who is an independent contractor and who is an employee, leading to misclassifications and payroll mistakes that can cause an employer to owe fines, back taxes, and unpaid overtime wages.
The Equal Pay Act (EPA) deters wage discrimination in the workplace. The EPA requires that men and women who work the same jobs in a workplace receive equal pay for their work. This compensation includes salaries, bonuses, stock options, life insurance, and overtime pay.
If one of your staff members suspects that you are not complying with the EPA, they can file a complaint with the Equal Opportunity Commission and bring a lawsuit against your facility. However, you can help prevent these issues by auditing your wage rates annually, documenting all pay decisions, and making compensation visible across your organization.
Workers’ Compensation Errors
Keeping your records organized and well-checked is important for taxes as well as insurance. Most states require workers' compensation insurance, and the premiums depend on staff classifications, total hours worked, and total payroll. In most states, insurance companies will execute an audit of employer policies to determine if their payroll records are correct. If your records don't match up, you may owe money toward your premium. To avoid this, it's a good idea to conduct an internal audit of your payroll with payroll-based journal (PBJ) reporting to detect any errors ahead of time.
Though it seems easy to avoid, miscalculating overtime pay can become a big problem, particularly if you're underpaying staff. While calculating overtime pay, it's important to remember the other types of compensation—such as commissions, shift differentials, and bonuses—that you must also take into account.
When determining the hourly rate to use for overtime pay, some employers may base it on the staff member's salary or weekly pay, which can cause a miscalculation. Miscalculation can lead to fines and even legal action from underpaid staff.
Failing to Take out Taxes for Benefits
Though there are many benefits taken out pre-tax, such as health savings accounts, certain staff fringe benefits are also subject to tax withholding from your staff's paychecks. You must also report this information on your tax forms to follow payroll tax compliance. This is another mistake that can often go unnoticed, so always check the benefits your business offers to determine their associated tax obligations.
Forgetting New Hire Paperwork and Reporting
Bringing in a new hire requires paperwork, such as an I-9 form and W-4 form for employment eligibility and tax information. While the onboarding and training process can become busy, it's important to complete this paperwork and report all new hire information as necessary. Employers must report all new hires to their states by the first scheduled payroll from the date of hire or within 20 days after hiring.
While federal law does not require independent contractors in this case, many states do, so it's important to maintain accuracy with reporting. Failing to do so—or even forgetting one form of documentation—can result in penalties and other problems during a compliance audit.
Failing to Maintain Records
With so much paperwork involved, it can be easy to lose track of your important documents. However, it's critical to maintain proper record-keeping processes in case state or federal tax agencies ask you to produce them. As a best practice, ensure you organize and secure your payroll records for all active staff members and those who have left within the last few years. If your facility has made mistakes with record-keeping in the past, a valuable option is to use online storage through payroll compliance software.
Missing Tax Deadlines
Even if you stay on track with all the necessary forms you need to complete, if you forget to file on time, your facility may encounter fines and penalties from the IRS. Remember that different forms have different filing dates. You must submit some forms quarterly, and others yearly.
Missing Deposit Dates
In addition to remembering all required forms and filing by the deadline, you are also responsible for payroll tax deposits that account for income, FUTA, and FICA taxes throughout the year. While you must deposit FUTA taxes quarterly, you can deposit your income and FICA taxes according to your business's payroll tax liability. Just as with tax forms, these deposits have specific dates. To make this process easier, you can utilize The Electronic Federal Tax Payment System (EFTPS) to ensure you make your payments on time.
Consequences of Noncompliance
Along with the fees, penalties, lawsuits, and other costs of noncompliance, these are some of the other consequences that can occur if you make mistakes, have incomplete payroll records, or file your taxes incorrectly or late:
- Overdue payments, causing staff to miss bills and leaving them feeling frustrated
- Legal expenses, interest, and back payments of missing pay
- Time-consuming errors hindering operational efficiency
- A decrease in staff morale
- Loss of valuable data
How to Maintain Payroll Compliance
Filing payroll tax involves many steps, forms, and dates you must remember. You also need to ensure you handle staff members' wages, bonuses, compensation, records, minimum requirements, and retirement funds correctly. With so many components to manage—in addition to maintaining your LTC/AL facility—it can be easy to forget something or confuse local, state, and federal tax requirements.
To avoid making an error, be sure you collect all the necessary information, double-check accuracy, and file everything correctly and on time. However, even in this case, humans are bound to slip up and lose a form or miscalculate overtime pay. If old methods aren't working for you, consider implementing new techniques and software to help automate your processes, maintain accountability, and ensure you remain compliant.
Payroll Compliance Checklist
It's always a good idea to create a checklist to help you stay on track with your assisted living payroll compliance. Here are some helpful tips to help you remember the right information and maintain a seamless process:
- Know your local, state, and federal payroll compliance regulations.
- Know your business's tax filing, deposit, and reporting deadlines.
- Ensure you classify your staff members and contractors correctly.
- Inspect all payroll and onboarding paperwork for missing information.
- Organize and maintain accurate staff payroll records.
- Use audit trails to help you detect and address any inconsistencies.
- Update staff records for any changes including benefit alterations, leave of absence, and marital status.
Manually examining and organizing paperwork can lead to human error. A best practice for maintaining payroll and tax compliance is implementing payroll software into your workforce management system. Payroll software, such as Smartlinx Payroll Processing, can help you avoid expenses due to human error and make your entire process much faster and more efficient. Here are some ways it can bring flexibility into your management:
- Automation: Payroll is a top priority, and the right software can help you complete this process with speed and accuracy. Whether you need to handle scheduling, overrides, deductions, or other tasks, automation removes these obstacles so you can focus on managing your facility.
- Integration: If you already have workforce management software in place, payroll compliances software can easily integrate with your existing system so you can easily manage payroll, staff records, and benefits.
- Reporting and compliance: Maintaining compliance is a challenging requirement, but Smartlinx makes it easy. You can automatically generate reports of deductions and staff benefit histories to help you stay on track with payroll and tax regulations.
Contact Smartlinx to Improve Your Workforce Compliance
Examining endless reports, forms, staff information, and payroll records can take up much of the time and energy you could be putting into your nursing facility instead. With Smartlinx Payroll software, you can reduce the payroll hassle and benefit from more flexibility and effortless solutions.
This software does the heavy lifting for you and reduces human error—helping you minimize expenses, stay in compliance, and ensure you pay your staff correctly and on time. Schedule a demo today to see how we can help you improve your long-term care payroll compliance.