Payroll Compliance Checklist for 2025: What Every Employer Needs to Know

Payroll compliance isn’t just about paying employees correctly. It’s about following a growing list of federal, state, and local regulations that can shift from year to year. Missing even one detail can lead to costly penalties or employee dissatisfaction. This 2025 checklist breaks down the seven most important areas to review so you can stay ahead of the curve, avoid legal pitfalls, and focus on what matters most: running your business.

Payroll Compliance Checklist for 2025

1. Comply With Federal Wage and Hour Laws

The Fair Labor Standards Act (FLSA), enforced by the U.S. Department of Labor, sets the foundation for wage and hour rules. These include:

Key areas include:

• Federal minimum wage

• Overtime eligibility and exemptions

• Breaks and hours worked

• Child labor protections

• Recordkeeping requirements for exempt and nonexempt workers

Effective July 1, 2025, the Department of Labor has increased the salary threshold for exempt white-collar workers to $1,128 per week (or $58,656 annually). Employers should audit job classifications to ensure exempt employees still qualify. 

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2. Understand State and Local Wage Laws

Many states enforce their own wage and hour laws that go beyond federal rules. For example:

• California and New York set their own minimum wages and mandate detailed pay stubs.

• States like Massachusetts and Illinois regulate final pay, pay frequency, and direct deposit rules.

• Cities such as San Francisco and Seattle set local minimum wages higher than the state or federal rates.

Employers operating in multiple locations must track compliance across every jurisdiction.

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3. Handle Wage Garnishments Correctly

Employers are legally required to withhold wages for debts like:

• Child support and alimony

• Student loans

• Tax debts

• Consumer debts (e.g., credit card judgments)

The Consumer Credit Protection Act (CCPA) sets limits on how much can be withheld, though some states have stricter rules. Separate laws apply to federal student loan and IRS wage garnishments.

Federal student loan collections resumed in May 2025, and the Department of Education can now enforce Administrative Wage Garnishment (AWG), withholding up to 15% of an employee’s disposable pay.

4. Accurately Deduct and Administer Employee Benefits

Payroll is often responsible for deducting and tracking benefits contributions, such as:

• Pre-tax benefits like health insurance or 401(k)

• Post-tax deductions for life insurance or garnishments

• Paid leave or state-mandated programs (e.g., family leave in NY or CA)

Each benefit category has different tax rules and reporting obligations. Misclassification or errors can lead to compliance violations and employee frustration.

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5. Withhold and Pay Federal Employment Taxes

Payroll compliance requires accurate calculation and timely deposit of federal taxes:

• Federal income tax withheld from employee wages

• FICA taxes: Social Security and Medicare 

• FUTA tax: Paid by employers to fund federal unemployment programs

Employers must also pay their own share of Social Security and Medicare taxes, and file quarterly returns (e.g., Form 941) and annual forms (e.g., Form W-2).

6. Account for State and Local Employment Taxes

Most states require employers to:

• Withhold state income taxes (except in states like FL, TX, WA, and others with no income tax)

• Pay state unemployment insurance (SUI) taxes

• Withhold additional taxes like state disability insurance tax (e.g., CA) or state unemployment tax (e.g., NJ)

Some cities also impose local income taxes or require additional filings, such as:

• New York City

• Philadelphia

• Cincinnati

Multi-state employers must also manage reciprocal tax agreements for employees who work in one state and live in another.

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7. Meet Payroll Reporting Requirements

Employers are responsible for filing payroll-related reports to the IRS, state tax departments, and sometimes local agencies. This includes:

• Form W-2: Year-end wage reporting for employees

• Form 941: Quarterly federal payroll tax returns

• State unemployment and income tax reports

• Local wage and tax reports, if applicable

As of 2024, the IRS requires electronic filing for 10 or more returns (previously 250). This applies to W-2s, 1099s, and other information returns.

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Final Thoughts: Payroll Compliance Is a Year-Round Job

Payroll compliance isn't something to review once a year. With changing regulations, tax thresholds, and employment laws, staying up to date is essential to protect your business and support your employees.

At Excelforce, we provide modern tools and expert support to help you stay compliant without the stress. Whether you need help with payroll, time tracking, or HR compliance, our team has your back.

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©2025 - Content on this blog is intended to provide helpful, general information. Because laws and regulations evolve, please consult an HR professional or legal expert for guidance specific to your situation.