Through a payroll policy, you’re better able to meet internal payroll deadlines, comply with federal and state payroll laws, and protect the company against wage and hour lawsuits. Make the policy concise while giving employees a solid understanding of your payroll procedures. Below are some inclusions.
Under the Fair Labor Standards Act (FLSA), employers must keep records that show when the workweek begins for nonexempt employees. Include in your payroll policy the time and day your workweek starts and ends, such as 12:01 a.m. Sunday through midnight Saturday.
Employees must be paid accurately and on time. Therefore, be clear about procedures surrounding the use of time clocks or time sheets. Explain that submitted hours are subject to approval by the respective supervisor. Also, list the penalties for falsifying time records.
Breaks and Meal Periods
Are short breaks and lunch periods provided? If so, for how long? Under what circumstances are breaks and lunches paid or unpaid? Do employees need to clock in and out for breaks and lunches? Address all of these questions in your payroll policy, and be sure your responses adhere to federal and state requirements.
Overtime Rules within a Payroll Policy
Let employees know if overtime is permitted at your workplace, how many hours constitute overtime under federal or state law and how overtime is calculated. Describe the approval process for working overtime. State the consequences of unauthorized overtime.
Pay Periods, Pay Dates and Direct Deposit
How often do you pay employees? When does the pay period for each payroll start and end? Do you have salaried and hourly employees? If so, do you have separate paydays for each group? Do you offer direct deposit? If so, is it mandatory or voluntary? Your responses must not conflict with applicable federal and state laws.
State the different types of payroll taxes that are typically withheld from wages. List the forms employees needed for federal and state income tax withholding, such as Form W-4 and the state’s withholding form.
Explain wage garnishment. You might say that, along with informing the employee of the garnishment, you will obey the garnishment order as required by law.
State whether voluntary benefits are deducted on a pretax or after-tax basis.
When will terminated employees receive their final paycheck? Will the final paycheck include all wages due at the time of separation? Will unused vacation or PTO be included in the final check? When employees resign, do they need to give advance notice in order to receive payout of unused vacation or PTO? Which deductions are taken out of the final paycheck? To ensure your answers are correct, examine federal and state laws on final wages.
Your payroll policy may also cover holiday pay, salary adjustments, pay increases, salary advances, overpayments, W-2 distribution and expense reimbursement.