Preparing for Payroll Costs in 2024

Inflation continues to dominate the headlines, and it’s surely having an impact on your payroll costs. As you begin to work on your 2024 budget, be sure to take payroll changes into account. These changes result from increased wages, higher payroll taxes, and other factors. Here are some things to think about now.

New wages

You may be required to increase employee wages due to minimum wage increases that go into effect on January 1, 2024. Most states have their own higher rate, which takes precedence over the lower federal rate, and some of these state and local rates are increasing on January 1, 2024. If you have remote workers, you must apply the rate in effect in their location. Check with your state’s rate now to determine the applicable rate for the coming year (some increases are effective on January 1, while others have effective dates later in 2024). There may also be rates for counties and cities.

New overtime pay rule

In making your 2024 budget, take into account a U.S. Department of Labor proposal to increase the threshold at which certain employees are exempt from overtime rules (i.e., more employees would be subject to the time-and-a-half overpay pay rule).

Compensation increases

Even if minimum wages and the overtime pay rule increases aren’t issues for you, if you’re trying to help your staff at least keep pace with inflation or simply reward them for work well done, it’s going to cost you. WorldAtWork projected compensation increases for 2024 of about 3.5%. But the amount by which you increase compensation for your staff depends on many factors besides inflation, such as the cost of living in your area, what your competitors are paying, and what you can afford.

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Higher payroll taxes

Recognize that increasing wages also means higher payroll taxes. Payroll taxes on employers include FICA, FUTA, state unemployment tax, and workers’ compensation. The good news is that workers’ compensation costs are expected to drop in some locations in 2024, although they are increasing in others. Check with your state or insurance carrier.

New employee benefits plans

To attract and retain employees during this tight labor market, you may want to introduce or increase your plan offerings. Consider medical benefits, dependent care benefits, and retirement savings options.

New Social Security tax wage base

FICA, which is comprised of Social Security and Medicare taxes, is a fixed rate: 7.65% on the employer as well as an equal rate on the employee. However, of FICA, 6.2% is the Social Security portion, and it applies only to taxable compensation up to a wage base that adjusts annually. In 2024, it will be $168,600, which is up from $160,200 in 2023. Companies that have employees earning more than the former wage base will pay an additional amount in 2024.

Conclusion

Be sure you’ve adjusted your budget for 2024 to account for the added payroll costs you expect to incur due to higher salary and wages paid to employees, new or additional fringe benefits, higher payroll taxes, and higher administrative costs related to payroll. Project whether you expect to expand your staff in 2024, which will also add to your budget. And monitor law changes on a federal, state, or local level that may increase your administrative or tax costs for payroll.

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