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Payroll Policy Must-Haves

payroll policy
Alexandre Diard
payroll policy

Through a payroll policy, you're better able to meet internal payroll deadlines, comply with federal and state payroll laws, and protect the company against wage and hour lawsuits. The payroll policy should be concise while giving employees a solid understanding of your payroll procedures. There are various items that should be included in your payroll policy in order to establish the rules and regulations and eliminate any misunderstandings about payroll.

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Items to be included in your payroll policy:

The Workweek

Under the Fair Labor Standards Act (FLSA), employers must keep records that show when the workweek begins for nonexempt employees. In your payroll policy, say what time and day your workweek starts and ends, such as 12:01 a.m. Sunday through midnight Saturday.


Employees must be paid accurately and on time. Therefore, you'll need to be clear about procedures surrounding the use of time clocks or time sheets in your payroll policy. Explain in your payroll policy that submitted hours are subject to approval by the respective supervisor. Also, list the penalties for falsifying time records in your payroll policy.

Breaks and Meal Periods

Do you provide short breaks and lunch periods? If so, for how long? Under what circumstances are breaks and lunches paid or unpaid? Do employees need to clock in and out for breaks and lunches? The rules surrounding breaks and meal periods can sometimes be hazy for employees so make sure you address all of these questions in your payroll policy, and make sure your responses adhere to federal and state requirements. 


Let employees know in your payroll policy whether overtime is permitted at your workplace, how many hours constitute overtime under federal or state law and how overtime is calculated. Describe the approval process for working overtime in your payroll policy. State the consequences of unauthorized overtime.

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Pay Periods, Pay Dates and Direct Deposit

How often do you pay employees? When does the pay period for each payroll start and end? Do you have salaried and hourly employees? If so, do you have separate paydays for each group? Do you offer direct deposit? If so, is it mandatory or voluntary? Your responses must not conflict with applicable federal and state laws.

Payroll Deductions

State the different types of payroll taxes that are typically withheld from your employees' wages in your payroll policy. Say what forms employees need to complete for federal and state income tax withholding, such as Form W-4 and the state's withholding form.

Explain how wage garnishment is handled in your payroll policy. You might say that, along with informing the employee of the garnishment, you will obey the garnishment order as required by law.

State whether voluntary benefits are deducted on a pretax or after-tax basis in your payroll policy.

Final Paychecks

When will terminated employees receive their final paycheck? And will it encompass all wages due at the time of separation? Will unused vacation or PTO be included in the final check? When employees resign, do they need to give advance notice in order to receive payout of their unused vacation or PTO? Which deductions are taken out of the final paycheck? To ensure your answers are correct, examine federal and state laws on final wages.

Your payroll policy may also cover holiday pay, salary adjustments, pay increases, salary advances, overpayments, W-2 distribution and expense reimbursement. 

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