Payroll compliance fails quietly. Nothing announces that a deposit schedule changed or that a withholding certificate is out of date — it surfaces later as a penalty notice, by which point several periods have usually been affected the same way.
This is the review worth running on a rhythm rather than when something goes wrong.
Every pay run
- Hours approved by someone other than the person who entered them, where that is possible
- Overtime calculated on the correct basis, not just hours above a threshold at base rate
- New starters set up completely, with certificates and eligibility verification on file
- Leavers processed, with final pay handled correctly
- Withholding matching each employee’s current certificate
- The net payment total reconciled against what left the bank
That last check catches more than it appears to. A payroll that does not reconcile to the bank has an error somewhere in it, and finding it that week is far easier than finding it at quarter end.
Every deposit cycle
- Deposit made by the assigned deadline — confirm the schedule has not changed for this year
- Accumulated liability monitored against the threshold requiring immediate deposit
- State withholding deposited on its own schedule, which may differ from the federal one
- Confirmation retained for each deposit
Do not assume the deposit happened because the software said it would. Someone should be confirming it did.
Every quarter
- Quarterly employment tax return filed on time
- Wages and withholding on the return reconciled to the payroll records
- State withholding and unemployment filings submitted
- Unemployment rate checked — it is assigned to your business and it changes
- Any classification changes during the quarter reviewed
The reconciliation between the return and the underlying records is the check most often skipped and most often revealing. Differences at quarter end almost always mean something was recorded inconsistently during it.
Every year
- Wage statements issued to employees and filed with the Social Security Administration by the deadline
- Information returns issued to contractors and filed with the IRS
- Contractor details verified before issuing — missing or incorrect identifying information is the usual cause of failures here
- Annual federal unemployment return filed
- Withholding certificates reviewed, particularly for employees whose circumstances changed
- Deposit schedule for the coming year confirmed
- S-Corp owner salary reviewed for reasonableness against the year’s profit
Year-end statement penalties are assessed per form, which means a small error repeated across a workforce becomes an expensive one. Verifying contractor identifying details at the point of engagement rather than in January removes most of that risk.
Records worth keeping, and for how long
Employment tax records should be retained for a period after the tax was due or paid, and several employment-related records carry their own retention requirements that outlast the tax ones. Because the periods differ by record type and by which agency is interested, the practical approach is to keep payroll records comfortably longer than you think necessary rather than disposing of them on the earliest permissible date.
- Payroll registers and pay records for every period
- Withholding certificates, including superseded versions
- Employment eligibility verification documentation
- Time records supporting hours paid
- Copies of all returns filed and deposits made
- Contractor information returns and the details supporting them
Warning signs
Any of these is worth acting on immediately rather than at the next review: a penalty notice for any period, a deposit made late for any reason, a worker whose classification has been questioned, an employee disputing their withholding, a quarterly return that did not reconcile, or nobody in the business being able to say with certainty who confirms the filings were made.
About the author
Latoya Clark
Latoya Clark founded Elite Pro-Tax & Financial Services to give individuals and small business owners in the Upstate straightforward, year-round tax and bookkeeping support — not just a filing service that disappears in April.
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