Payroll accountants play a vital role in all companies with a staff of employees. Both small and large businesses alike must comply with local, state and federal laws specific to payroll reporting and compliance regulations. In essence, payroll accountants act as liaisons that perform financial and reporting activities between a business organization, their employees and the government.
The most common task that is performed by payroll accountants is the calculation of employee paychecks. Payroll accountants must keep track of employee time cards, requests for paid and unpaid leaves of absence, as well as other factors that are essential to accurate payroll calculation.
Aside from participating in the daily operations of a business’s payroll department, payroll accountants often act as internal payroll auditors. During an internal audit, the payroll accountant will review, evaluate and assess the accuracy of payroll and tax documents. They also work to ensure that the company is compliant with federal, state and local regulations that are relevant to the payroll reporting process.
Tax and Benefits Withholding
Payroll accountants must be well versed in tax laws and regulations. From an employee standpoint, the payroll department is responsible for making sure the appropriate amount of taxes have been withheld from each paycheck. These include federal, state and local income tax, Social Security tax and unemployment tax. While hourly wages and annual salaries are important for calculating gross wages, the net amount that employees receive is contingent upon a number of factors such as their expected tax bracket, medical plan contributions and other employee benefit plans such as a 401K, life insurance or annuity program. It is the responsibility of payroll accountants to make sure that all necessary withholdings are taken from each paycheck.
On the corporate or business end, payroll accountants are responsible for making quarterly payments to the Internal Revenue Service and other state and local taxing authorities. There are numerous categories of taxes on the business side such as federal unemployment tax, Social Security tax and workers’ compensation. Businesses are required by the government to pay half of an employee’s Social Security and Medicare tax liability. In most cases, companies that employ workers must also pay unemployment tax under the Federal Unemployment Tax Act as well as purchase a workers’ compensation insurance policy to provide monetary benefits in the event an employee is injured on the job.
At the end of each year, payroll accountants are responsible for compiling and issuing individual compensation reports to each employee, and to the government, for tax purposes. There are several types of compensation reports, including W-2, W-3, 1099 and 941 forms. Each form corresponds to the type of employee or compensation activity that took place at the company over the course of the year. For example, W-2 statements provide the total amount of income, tax withholding and employee benefits that a person with “employee status” accumulated over the course of the year. 1099 statements are similar to W-2 statements, but are used to report income paid to non-employees and independent contractors.
Record Keeping Requirements Under the Fair Labor Standards Act (FLSA)
Both the IRS and the Fair Labor Standards Act (FLSA) require businesses to keep and maintain certain employee records in their files. Payroll accountants are responsible for ensuring that their payroll department is complying with this regulation. According to the United States Department of Labor, there is no required protocol or form for keeping the documents, such as paper documents as opposed to electronic files. The only requirement is that these documents are accessible. The following is the information that must be kept in each employee’s file:
- Name and Social Security number
- Home address
- Date of birth
- When the employee’s work week begins
- The total number of hours worked each day
- Basis of wages
- Hourly wages
- Total straight-time earnings for the week
- Total overtime earnings for the week
- Deductions from wages
- Total wages paid per pay period
- Dates and amounts included in each pay period
Businesses and corporations that fail to properly maintain employee records in accordance with the Fair Labor Standards Act may be subject to fines and possible imprisonment under the FLSA. Both the IRS and the U.S. Department of Justice (DOJ) may also impose separate fines and criminal penalties for non-compliance.
Tax Withholdings Under the Federal Insurance Contributions Act (FICA)
Payroll accountants must be familiar with the Federal Insurance Contributions Act, or “FICA tax”, as it is commonly referred. The federal law requires employers and employees to pay into the Social Security and Medicare programs. Under the typical employer/employee relationship, each party will pay half of the tax. Currently, the FICA contribution tax rate is 6.2% for Social Security and 1.45% of gross wages for Medicare.
Workers who are classified as independent contractors or those who receive 1099 tax statements from a business do not share liability for FICA taxes with the business that they work for, as they are not “regular” employees. In these cases, the business is not required to pay any FICA tax on behalf of the worker. Instead, the independent contractor is responsible for paying the entire FICA tax. This works out to 12.4% of gross wages for Social Security and 2.9% for Medicare.
Education and Degree Options
According to the U.S. Department of Labor, Bureau of Labor Statistics, most individuals will need at least a bachelor’s degree in accounting or a related field such as business administration, finance, statistics, actuarial science or economics in order to work in the field of payroll accounting.
Individuals may be able to advance their careers by obtaining a Master’s degree in business administration or by pursuing a Certified Public Accountant (CPA) license. There are also a number of specific payroll certifications that are provided by professional associations.
Individuals interested in pursing a career focused on payroll accounting may choose to acquire professional designations and credentials. The American Payroll Association, which is the main professional association in the field of payroll accounting, offers two distinct certification programs:
Fundamental Payroll Certification (FPC): This certification program is geared toward entry-level payroll professionals. The program is open to anyone who wishes to demonstrate that they have basic payroll knowledge and competency. The designation is awarded after the candidate successfully completes the Fundamental Payroll Exam.
Certified Payroll Professional (CPP): This certification is reserved for advanced payroll professionals. In order to be eligible for the designation, an individual must have worked for at least three out of the five previous years as a payroll professional. CPP qualifications are also met by having been employed for the last 24 months, given that specific course work was completed. A third eligibility option exists for those who have obtained the FPC certification, worked in the field for 18 months and completed specific required coursework. The designation is issued by the American Payroll Association after the successful completion of the Certified Payroll Professional Examination.