--- name: payroll-operations description: Oversee payroll processing operations including pay run execution, tax compliance, year-end processing, payroll audits, correction handling, and payroll system administration. Use when managing weekly/bi-weekly/monthly payroll cycles, resolving pay discrepancies, ensuring tax withholding compliance, processing year-end W-2s/1099s, or conducting payroll reconciliations. Triggers on phrases like "payroll processing", "pay run", "pay discrepancy", "tax withholding", "year-end payroll", "W-2", "payroll audit", "payroll reconciliation", "offboarding payroll", "overtime calculation". --- # Payroll Operations Ensure accurate, compliant, and timely compensation delivery. ## Workflow 1. Begin payroll cycle: pull time and attendance data, verify hours, approve overtime. 2. Process changes: new hires, terminations, salary changes, bonuses, deductions, benefits elections. 3. Run payroll preview: validate calculations, review exceptions, check totals against budget. 4. Approve and submit payroll: finalize pay run, process payments (direct deposit, checks). 5. Post-payroll: distribute pay stubs, resolve issues, process corrections if needed. 6. Tax processing: calculate withholdings, deposit taxes, file returns. 7. Year-end: prepare W-2s, 1099s, final reconciliations. 8. Audit: quarterly spot-checks, annual comprehensive audit. ## Payroll Cycle Timeline ``` BI-WEEKLY PAYROLL CYCLE CHECKLIST ================================== Day -5 (Monday): Cycle begins [ ] Pull time and attendance data from time tracking system [ ] Collect new hire data (start dates, pay rates, tax forms) [ ] Collect termination data (final pay dates, severance) [ ] Compile change requests (raises, bonuses, deductions, benefit changes) [ ] Verify overtime approvals Day -3 (Wednesday): Data entry and review [ ] Enter all changes into payroll system [ ] Run payroll preview / test run [ ] Review exception report (new hires, terminations, negative hours, overtime flags) [ ] Reconcile headcount: payroll count matches HRIS count [ ] Verify totals: compare to prior cycle + known changes Day -2 (Thursday): Approval [ ] HR director reviews payroll summary [ ] Finance director reviews totals and variances [ ] Approvals documented (dual approval required) [ ] Address any flagged issues Day -1 (Friday): Finalization [ ] Final payroll review (spot-check 5 random employees) [ ] Submit payroll for payment processing [ ] Confirm direct deposit file transmitted [ ] Print physical checks (if any — target: zero) Payday: Payment [ ] Direct deposits confirmed by bank [ ] Pay stubs distributed (email or portal) [ ] Payroll help desk active for questions (24h window) Day +1 to +3: Post-payroll [ ] Resolve payroll inquiries and issues [ ] Process corrections (if any — same cycle or next, depending on severity) [ ] Deposit payroll taxes (per schedule) [ ] Archive payroll records Monthly: Additional [ ] Benefits deduction reconciliation [ ] Workers' comp premium calculation [ ] Payroll cost allocation to departments (for accounting) Quarterly: [ ] Federal and state unemployment tax filings (FUTA/SUTA) [ ] Quarterly tax deposits (Form 941) [ ] Payroll audit spot-check Annually: [ ] W-2 preparation and distribution (by January 31) [ ] 1099 preparation for contractors (by January 31) [ ] Final tax reconciliation [ ] Payroll system year-end processing [ ] Comprehensive payroll audit ``` ## Payroll Compliance ``` PAYROLL COMPLIANCE REQUIREMENTS (US) ===================================== Federal: - FLSA: minimum wage ($7.25/hr federal, but state may be higher), overtime (1.5x after 40hrs/week) - FICA: Social Security (6.2%) + Medicare (1.45%) — withheld from employee + matched by employer - FIT: Federal income tax withholding (based on W-4 forms) - FUTA: Federal unemployment tax (6% on first $7,000, typically credited to ~0.6%) - ERISA: benefit-related payroll deductions State: - State income tax withholding (varies by state; 9 states have no state income tax) - Local taxes: city income tax, transit tax (e.g., NYC, DC, Chicago) - State unemployment tax (SUTA): rate varies by experience rating - State minimum wage: often higher than federal - Meal and rest break pay requirements (CA, CO, NY, etc.) - Final pay timing: immediate (CA, NV, MD) to next payday (most states) Recordkeeping: - Payroll records retained: 3 years minimum (DOL requirement) - Required records: employee names, addresses, SSN, pay rates, hours worked, deductions, gross/net pay, pay dates, job classifications - W-4 forms: retained for current + 2 prior years Penalties for non-compliance: - Late tax deposit: 2–15% of unpaid amount (depending on lateness) - Failure to file returns: $50–$500 per return per month - Misclassification (employee vs contractor): back taxes + penalties + interest - Wage theft: liquidated damages equal to back wages + legal fees ``` ## Payroll Issue Resolution ``` PAYROLL ISSUE RESOLUTION PROTOCOL ================================== Issue categorization: CRITICAL (resolve within 24 hours): - Employee not paid at all - Wrong bank account / payment failure - Significant underpayment (> 10%) - New hire first pay not processed Resolution: immediate correction via supplementary payment HIGH (resolve within 48 hours): - Incorrect tax withholding - Missing bonus or commission - Benefits deduction error - Overtime miscalculation Resolution: correct in next payroll cycle + communicate timeline MEDIUM (resolve within 1 week): - Pay stub discrepancy (minor) - Deduction inquiry - Pay rate confusion Resolution: investigate, respond to employee, correct if warranted LOW (resolve within 2 weeks): - Pay stub format questions - Historical pay inquiry - General payroll policy question Resolution: respond via standard channels; update FAQ if recurring Resolution template: Issue ID: [auto-generated] Employee: [name, ID] Pay period: [dates] Issue description: [factual] Root cause: [data entry error, system issue, process gap, time entry error] Resolution: [correction amount, effective date] Preventive action: [process change, training, system fix] Status: Open → Investigating → Resolved → Closed ``` ## Payroll Audit Framework ``` QUARTERLY PAYROLL AUDIT ======================== Scope: 10% random sample + all critical items (new hires, terminations, executives) Checklist: 1. HEAD COUNT RECONCILIATION [ ] Payroll headcount matches HRIS active employee count [ ] No duplicate employee records [ ] Terminated employees removed from active payroll 2. NEW HIRE VERIFICATION [ ] W-4 on file before first payment [ ] I-9 completed within 3 business days of start [ ] Pay rate matches approved offer [ ] Benefits deductions correct per election 3. COMPENSATION VERIFICATION [ ] Salary changes match approved documentation (signed increase letter) [ ] Bonus payments match approved budget and eligibility criteria [ ] Overtime calculations correct per FLSA classification [ ] Commission calculations match sales system data 4. TAX COMPLIANCE [ ] Federal tax deposits made on schedule [ ] State tax deposits made on schedule [ ] Withholding amounts match W-4 elections [ ] State withholding correct for employee work location (not company location) 5. DEDUCTIONS [ ] Benefit deductions match current enrollment [ ] Voluntary deductions have signed authorization [ ] Garnishments processed per court order terms [ ] 401(k) deferrals within IRS limits 6. REPORTING [ ] Department cost allocation accurate [ ] Payroll journal entries balanced [ ] Variance to budget documented and explained Findings documented with: - Issue description - Financial impact - Root cause - Corrective action - Preventive measure - Owner and deadline ``` ## Edge Cases - **Multi-state payroll**: Employees working remotely in different states trigger multi-state withholding, multi-state unemployment registration, and potential nexus issues — verify each employee's work location and comply accordingly - **Contractor vs. employee misclassification**: Regular audit of 1099 workers; apply IRS 20-factor test; misclassification carries severe penalties (back taxes, penalties, class action risk) - **Global payroll**: Use global payroll provider or local payroll vendors per country; consolidate reporting; manage currency conversion and local tax compliance - **Payroll system migration**: Dual-run payroll for 2–3 cycles during transition; validate all data migrated; test all deduction types; communicate extensively with employees - **Garnishments and levies**: Court-ordered wage garnishments (child support, tax levies, creditor judgments) — process per legal order; cannot terminate employee solely for garnishment (FDCPA); track maximum withholdable disposable earnings - **Tips and piece-rate**: Special FLSA rules for tipped employees (tip credit) and piece-rate workers (must still meet minimum wage for all hours worked, including non-piece time)