Payroll Tools

Federal Payroll Requirements

Federal payroll compliance is governed by several key laws and regulations, which all employers must follow:

1. Fair Labor Standards Act (FLSA)

• Sets the federal minimum wage ($7.25/hour as of 2025), overtime rules, and child labor restrictions.

• Requires accurate recordkeeping for all non-exempt and exempt employees.

2. Payroll Taxes

• Employers must withhold and remit federal income tax, Social Security (FICA), and Medicare taxes.

• FICA taxes total 15.3% (split between employer and employee).

• Federal Unemployment Tax Act (FUTA) funds temporary unemployment benefits. 

3. Other Key Laws

• Family and Medical Leave Act (FMLA): Unpaid, job-protected leave for family/medical reasons.

• Equal Pay Act (EPA): Prohibits wage discrimination based on sex.

• Davis-Bacon Act: Prevailing wage requirements for public works projects.

• Consumer Credit Protection Act (CCPA): Limits wage garnishments.

4. Record Retention

• Payroll records: At least 3 years (FLSA).

• Timekeeping and wage calculation records: At least 2 years.

• Payroll tax records: Typically 4 years (IRS). 

5. Reporting and Filing

• Employers must file Forms W-2, W-3, 941, and 940, among others, and meet all IRS deadlines. [irs.gov]

State Payroll Requirements (Montana Example)

State payroll laws often add requirements beyond federal rules. Here’s an overview with a focus on Montana, where you are located:

1. Minimum Wage and Overtime

• Montana sets its own minimum wage, which may be higher than the federal rate. Effective Jan. 1 2026 the minimum wage for Montana State will increase to $10.85 per hour.

• State-specific overtime rules may apply.

2. Pay Frequency and Methods

• States regulate how often employees must be paid (e.g., biweekly, semimonthly).

• Montana encourages direct deposit but allows other methods.

3. Wage Deductions and Garnishments

• All wage garnishments and child support withholdings for Montana state employees are processed centrally and can be automatically deducted by the payroll software depending on which one you're using.

• The state must comply with both federal and state garnishment orders. 

4. Leave and Benefits

• State law may require paid sick leave, jury duty leave, and other benefits.

• Eligibility for benefits is tied to position type.

5. Recordkeeping

• Montana, like many states, may require payroll and HR records to be kept for 4–6 years, longer than the federal minimum. 

6. State Payroll Taxes

• Employers must withhold state income tax (if applicable), unemployment insurance rates implemented annually, and may be subject to local taxes depending on the industry. 

• Filing deadlines and forms vary by state so having an up-to-date payroll software that works for you. Click here to sign up for the cheapest and most efficient software we recommend.

Best Practices for Compliance

• Stay Updated: Laws change frequently—review both federal and state updates annually.

• Audit Regularly: Check your payroll systems for compliance with wage, hour, and tax rules.

• Use Reliable Payroll Software: Automate calculations and filings to reduce errors.