Adjust Your Payroll Costs for 2022

Adjust Your Payroll Costs for 2022
In crafting your budget for the coming year, here are some payroll areas to look at carefully.
by Small Business Trends Dec 30, 2021 — 3 min read
Adjust Your Payroll Costs for 2022
Editor’s note

Please note that the information contained in this article is limited in scope and is only intended as a high-level overview of the topics discussed. The information is current as of the publication date only, and the laws (and associated agency and/or judicial interpretations) on the topics discussed could change at any point in the future. Block, Inc. (including its affiliates, subsidiaries, employees, officers, directors, attorneys, and tax advisors) undertakes no obligation to update this article for future changes in the law. In addition, laws vary by jurisdiction, and this article does not attempt to address all jurisdictions — for example, states, counties, or cities often have requirements that differ from federal law. Nothing in this article is or should be used as tax or legal advice. In particular, this article cannot be relied upon for the purposes of avoiding taxes, penalties, or other obligations under applicable law. For guidance or advice specific to your business, you should consult with a qualified tax and/or legal professional.

This article was written by Barbara Weltman from Small Business Trends  

It’s no secret that just about everything these days costs more. Payroll is no exception. In crafting your budget for the coming year, be sure to factor in adjustments in payroll costs as needed due to practicalities and law changes.

Adjust your payroll costs in 2022

Here are some areas to look at carefully.

New wages

You may be required to increase employee wages due to minimum wage increases in your state or locality that go into effect on January 1, 2022. While the federal minimum wage has not been adjusted and is the standard in seven states, most states have their own higher rate which takes precedence over the lower, federal rate. What’s more, the minimum wage rate in 18 states and D.C. may be increased annually due to inflation. Guess what — they all have an increase in 2022. A number of cities have higher rates than the states they’re in, so check with your state and city now to determine the applicable rate for the coming year.

Even if minimum wage increases aren’t an issue 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. In the summer, WorldAtWork projected compensation increases for 2022 of about 3.3%. With the hike in the inflation rate in recent months, actual increases could be higher.

Recognize that increasing wages also means higher payroll taxes. Payroll taxes on employers include:


And there’s also workers compensation, the cost of which reflects your payroll.

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 the following:

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, 6.2% of FICA is the Social Security portion, and it applies only to taxable compensation up to a wage base that adjusts annually. In 2022, it will be $147,000, which is up from $142,800 in 2021. Companies that have employees earning more than the former wage base will pay an additional amount in 2022.

The 1.45% portion of FICA for Medicare taxes applies to all taxable compensation; there is no wage base cap.

Repaying 50% of deferred Social Security tax from 2020

Some employers opted to defer a portion of their 2020 Social Security tax. Half was required to be paid by the end of 2021; the other half is due by December 31, 2022. Employers should factor this repayment into their deposits for 2022.


Be sure you’ve adjusted your budget for 2022 to account for the added payroll costs you expect to incur. The added costs are due to higher payments to employees, higher payroll taxes, and higher administrative costs related to payroll. Also monitor any law changes on a federal, state, or local level that may increase your administrative or tax costs for payroll.

This article was written by Barbara Weltman from Small Business Trends and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to [email protected].

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