A Simple Guide To Understanding US Payroll Regulations

A Simple Guide To Understanding US Payroll Regulations

While the United States has a multi-trillion dollar economy which provides significant opportunities to both local and international businesses, many companies make mistakes when it comes to interpreting US payroll regulations. This is understandable as these regulations can be quite complex. In addition to the federal laws regarding payroll, employers must also take into consideration state and municipal compliance. Below is a simple guide to interpreting American payroll regulation in a manner that will benefit businesses.

Compensation For Employees

The United States currently has no federal law regarding how often workers should be paid. This leaves states and businesses free to establish their own guidelines. Many U.S. states require employers who have fired their employees to compensate them for any unused time they’ve taken off if it has been accrued before their termination. Employers are expected to have a written policy in place for these scenarios. Federal law, by contrast, does not make termination pay mandatory beyond any amounts a worker earned within the pay period leading up to their departure from the company.

Employer Contributions Towards FICA

FICA, or the Federal Insurance Contributions Act, makes it mandatory for American employers to withhold both Medicare and Social Security contributions from the wages of employees. For the 2016 calendar year, businesses are expected to withhold 1.45 percent for every employee’s earnings which are taxable for Medicare, and 6.2 percent towards Social Security.

The rates may be changed annually, which is also the case for wage limits. The base limit for Social Security taxes in 2016 was $118,500, while no base limit has been established for Medicare. Earnings higher than $200,000 will be subject to an additional Medicare tax of 0.9%. Businesses within the United States must also offer a contribution amount which matches and uses the identical wage limit and percentage as with employee withholding.

Labor Regulations

Labor regulations in the U.S. are governed by FLSA, or the Fair Labor Standards Act. Individual states may enact additional laws beyond FLSA which provide greater benefits to workers, and businesses which operate in these areas are expected to adhere to state and federal law. There are ten national holidays celebrated within the U.S. that the federal government does not require employees to be compensated for, and while FLSA also doesn’t cover paid leave, the Family Medical Leave Act does require workers to be given as much as twelve weeks of leave which is unpaid for specific medical issues.

Requirements For Income Taxes

Employers within the United States are expected to withhold the income taxes of their employees. The tax rate is determined federally on a yearly basis, and for 2016 the rate ranged from ten percent for low income workers to as high as 39.6 percent workers who earned the highest incomes. Employers are required to issue taxes for their workers to the Internal Revenue Service. Taxes must be issued in accordance with the deposit schedule established by the IRS, which is determined by the total tax liability of the employer within a withholding period.