4 Tips for Tax and Labor Compliance Requirements

4 Tips for Tax and Labor Compliance Requirements

This article was updated on July 3, 2018.

Ask small and midsize business owners about their biggest challenges and you'll get a range of answers, but two that always hover near the top are managing employees and understanding IRS rules. Companies are obligated to meet seemingly labyrinthine tax and labor compliance requirements. While there is often plenty of guidance from state governments on how to start a business in its jurisdiction, there is often less information available on the HR and tax compliance requirements that must be followed as the company grows. Here's a quick list of resources to help you identify and comply with any relevant tax or labor compliance requirements.

1. Begin at the Top

Before you dive into state-specific tax regulations, make sure you understand federal business requirements. Most companies are required to pay federal income tax, for example, but how that tax is assessed depends on the structure of your business. For a limited liability company, the business and its owners file separate tax forms. Sole proprietors report business and personal income on the same form. Some states have small variations in these requirements. To help you determine how to file, visit the U.S. Small Business Administration for federal and state-specific tax information.

2. Dive Into Your State

States typically host specific tax forms and outline compliance requirements on the websites of their departments of revenue. The Minnesota Department of Revenue website, for example, offers a separate section of the site dedicated to electronic and phone tax-filing options, along with useful tips for those who may be less experienced in filing taxes for a business in that state. Details like these make exploration of state requirements critical; assuming regulations are the same across borders could result in hefty fines or additional taxes owed.

3. Know What You Owe

To further understand tax and labor compliance requirements in your state, get a handle on your payment obligations to employees. Your best-bet resource is the U.S. Department of Labor. Its state labor laws page provides links to the wage requirements of all 50 states and the District of Columbia. Certain states, counties and cities have their own specific minimum wage and overtime requirements that differ from federal regulations. You'll need to find out the specifics for your area and follow whichever regulations are more generous to the employee.

4. Understand Employer Obligations

Take the time to learn specific employer obligations under state labor compliance requirements; try the Society for Human Resource Management as a starting point. In Colorado, for example, state law mandates a "duty-free" meal break of at least 30 minutes after five hours of scheduled work; this time can be uncompensated as long as employees are completely relieved of all work duties and free to pursue "non-work" goals. In cases where such a meal break is not possible, employers must provide compensated, "on-duty" meal time.

Following state tax and labor compliance requirements can be complex, so be sure to read all relevant materials. In addition, third party payroll and compliance vendors can help you navigate these tricky waters.