As an employer, it’s vital to know what payroll issues may be in store for 2023 and the foreseeable future so that you can get ahead of them.
Here's what you need to know:
- Two of the major developments for 2023 are the significant increases in certain payroll taxes and employee benefits plan limits
- Keeping up with payroll regulations is getting even more challenging, because federal, state, and local governments are enacting new payroll laws at a faster rate
- Employers are recognizing payroll’s role in strategic endeavors, such as employee motivation, satisfaction, and retention
- A qualified and talented payroll team is essential
- It’s important to properly classify your employees and independent contractors, as required by federal or state law
- In 2023 and beyond, consider payroll software that integrates and simplifies related functions and helps you keep up with complexities
As we usher in a new year, fresh challenges await on the payroll front. Indeed, the year 2023 will be an interesting one for payroll, as novel trends emerge and existing rules are modified.
As an employer, it’s important to know what payroll challenges may be in store for 2023 and the foreseeable future. This is key to preparing for any changes applicable to your business.
In this article, we address payroll challenges relating to:
- Payroll tax rates and employee benefits limits
- Changing payroll regulations
- Payroll as a strategic business partner
- Technology for payroll
- Payroll talent
- Compensating diverse and distributed workforces
- In-house vs outsourced payroll
Payroll tax rates and employee benefits limits
Two of the major developments for 2023 are the significant increases in certain payroll taxes and employee benefits plan limits.
Increases are slated to occur in:
- The Social Security tax wage base
- The federal income tax brackets
- 401(k) plans
- Health savings accounts
- High deductible health plans
- Health flexible spending accounts
- Transit and parking benefits
- Adoption assistance
- Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
For details on these increases, see Payroll Tax Rates and Benefits Plan Limits for 2023.
A high-performing payroll solution is crucial to ensuring accurate and timely administration of these payroll tax and employee benefits changes for 2023. The same goes for future changes in the years following 2023.
While the scope of these changes varies from year to year, one thing is certain: payroll tax rates and employee benefits changes will occur — and you must prepare for them.
Changing payroll regulations will be happening
As stated, regulatory payroll changes are a given. While many of these changes are federally driven, they happen frequently at the state (and sometimes local) level as well.
Although these changes often take effect at the start of a new year, it’s not uncommon for regulatory changes to occur mid-year.
Keeping up with payroll regulations is getting even more challenging, because federal, state, and local governments are enacting new payroll laws at a faster rate.
Below are some regulatory payroll developments to look out for in 2023 and beyond:
- Minimum wage
- Hours worked
- Payroll taxes
- Voluntary benefits
- Mandatory benefits
- Pay transparency
- Equal pay
- Predictive scheduling
- Relief programs (e.g., COVID-19 relief)
- Record keeping
It’s important to know which payroll regulations apply to your business in 2023, and stay on top of new developments.
Employers are recognizing payroll as a strategic business partner
According to a Ceridian report, “Organizations are starting to realize there’s a lot of untapped potential in payroll.” One of these untapped potentials is payroll as a strategic business partner.
Strategic business decisions are typically created by C-suite executives and/or upper management. While a payroll director or payroll manager may be included in high-level payroll discussions, the payroll department is normally viewed as a back-office function. However, that is changing.
Employers are recognizing payroll’s role in strategic endeavors, such as employee motivation, satisfaction, and retention. These initiatives are vital to the organization’s overall growth.
Strategic payroll initiatives for 2023 and beyond include:
- Improving paycheck accuracy and timeliness. (A 2019 survey found that 1 in 5 employees were paid late at least once in the last year.)
- Providing access to self-service options to boost employee engagement and autonomy.
- Devising ways to reduce the growing problem of employee financial stress, such as providing quality, affordable benefits or access to on-demand pay.
Payroll technology is essential to keep up with complexities
You’re likely utilizing payroll technology to manage your payroll responsibilities. But all payroll technologies are not created equal.
For example, if you’re using an on-premise payroll solution instead of cloud-based payroll software, you may want to rethink this.
As explained in 1 report, “Today, cloud solutions deliver up to 3.2 times the ROI of an on-premise solution because of the efficiencies they provide. Despite this, only 39% of companies globally were using cloud-based technologies for payroll functions prior to the [COVID-19] pandemic.”
Payroll is becoming increasingly complex, as more and more workplaces go global or remote and compliance concerns increase.
Payroll is becoming increasingly complex, as more and more workplaces go global or remote and compliance concerns increase. Best practices call for employers to invest in payroll technology that keeps up with these complexities.
In 2023 and beyond, consider payroll software that integrates and simplifies related functions, including time and labor, payroll processing, employee benefits, and payroll accounting. The software should also prioritize payroll data security.
A qualified and talented payroll team is essential
Although payroll technology does much of the heavy lifting, it does not eradicate the need for human payroll experts.
However, the Great Resignation is still ongoing. According to a Robert Half survey, “46% of respondents are currently looking or plan to look for a new role in the first half of 2023, up from 41% six months ago.”
Qualified candidates tend to have ample choices when job hunting, especially during a tight labor market. So, if you’re looking for talented payroll professionals in 2023, consider upping your recruiting game.
If you already have a qualified payroll team, you may need to up your retention game in 2023 and beyond.
Make qualified payroll candidates an offer they cannot refuse, and give your current payroll employees the tools they need to succeed. This will help put (and keep) you ahead of the competition.
Compensating diverse and distributed workforces
As mentioned, payroll is getting more and more complex as many employers go global and remote.
Moreover, many employers are turning to alternative staffing measures to fulfill their business needs. For example, they may hire:
- Part-time employees
- Temporary employees
- Seasonal employees
- Independent contractors
If you have, or intend to implement, alternative staffing measures or a distributed workforce, make sure you know the rules.
For example, misclassifying employees as independent contractors is a common employer mistake — one that results in costly governmental penalties. So, it’s important to properly classify your employees and independent contractors, as required by federal or state law.
Similarly, payroll for part-time, seasonal, remote, and hybrid employees must be done in a legally compliant manner.
Determining whether to have in-house vs outsourced payroll
Whether to perform payroll in-house or outsource payroll is a question many employers face from year to year.
Even if you’ve already decided, you will likely need to revisit your stance at some point, because how companies should execute payroll is subject to change.
Whether you should outsource payroll depends on many factors, including:
- The complexity of your payroll
- How much it costs to do payroll in-house
- The competency of your in-house payroll team
- The quality of service provided by the outsourcing provider
- The monetary cost to outsource payroll
- The benefits of keeping payroll in-house vs. outsourcing
After answering the relevant questions, you may find that no changes are needed. But this is a recurring payroll evaluation that should be done at least once per year.
Note that small businesses tend to fully outsource payroll more than large businesses, due to having fewer resources.
That said, many employers choose to outsource only certain aspects of their payroll, instead of the entire function. According to Deloitte, “although many organizations outsource, the need to retain payroll expertise in-house remains high.”
Payroll software is a must if you process payroll in-house
This is especially true when you consider all the payroll challenges on the horizon, including:
- The increasing payroll tax rates and benefits plan limits for 2023
- Payroll’s role as a strategic business partner
- Changing payroll regulations
- The need for qualified payroll practitioners
- The rise of diverse and distributed workforces
Is your payroll technology equipped for 2023 and beyond? Check out Zenefits All-in-One payroll software to experience payroll the right way.