Payroll Compliance Guide for U.S. Employers

This payroll compliance guide provides an overview of employer payroll responsibilities in the United States. It explains federal payroll requirements, tax obligations, wage rules, and recordkeeping duties that apply to employers regardless of size or industry.

Payroll compliance involves paying employees correctly and on time, withholding and remitting taxes, filing required payroll forms, and maintaining accurate records.

Federal Payroll Authorities

Payroll compliance in the United States is governed primarily by federal law and enforced by multiple agencies, including the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL).

Employer Payroll Responsibilities

Employers are responsible for:

• Paying wages in accordance with federal and state law
• Withholding required payroll taxes from employee wages
• Paying employer payroll taxes
• Filing payroll tax returns and reports
• Maintaining payroll and employment records

Payroll Taxes Employers Must Withhold

Employers must withhold the following taxes from employee wages:

• Federal income tax
• Social Security tax
• Medicare tax
• State and local income taxes, where applicable

Employer Payroll Taxes

In addition to employee withholdings, employers are responsible for paying certain payroll taxes, including:

• Employer share of Social Security tax
• Employer share of Medicare tax
• Federal Unemployment Tax (FUTA)
• State unemployment insurance (SUI)

Wage and Hour Requirements

Federal wage and hour rules are enforced by the U.S. Department of Labor under the Fair Labor Standards Act (FLSA).

• Employers must pay at least the federal minimum wage, unless a higher state minimum wage applies.
• Non-exempt employees must receive overtime pay at one and one-half times their regular rate for hours worked over 40 in a workweek.
• Employers must properly classify employees as exempt or non-exempt.

Pay Frequency and Payday Rules

Pay frequency and payday requirements are governed primarily by state law. Employers must follow the payday rules of the state in which the employee works, including rules on final paychecks.

Required Payroll Forms

Common federal payroll forms employers must use include:

• Form W-4 – Employee withholding certificate
• Form W-2 – Wage and tax statement
• Form W-3 – Transmittal of wage statements
• Form 941 – Employer’s quarterly federal tax return
• Form 940 – Federal unemployment tax return

Additional guidance on federal payroll forms is available in the
Federal Payroll Tax Forms section.

Payroll Recordkeeping Requirements

Federal law requires employers to keep payroll records for specific periods of time. Records typically include:

• Employee identifying information
• Hours worked and wages paid
• Payroll tax withholdings and deposits
• Copies of payroll tax filings

Most payroll records must be retained for at least three to four years, depending on the record type.

Employee vs. Independent Contractor

Employers must correctly classify workers as employees or independent contractors. Employees are paid through payroll with tax withholdings, while independent contractors are reported separately and are not subject to payroll withholding.

Using Payroll Services

Many employers use payroll service providers to assist with payroll calculations, tax deposits, and filings. Employers remain legally responsible for payroll compliance even when payroll is outsourced.

Related Employer Compliance Resources

Payroll compliance works alongside other employer obligations, including employment verification requirements explained in the Handbook for Employers (M-274).

Why Payroll Compliance Matters

Maintaining payroll compliance helps employers avoid penalties, interest, and audits. A clear understanding of payroll obligations supports accurate wage payments and lawful employment practices.