Over $8.8 trillion dollars are processed each year for payroll in the United States. The country’s 11,000 tax jurisdictions produce over 25,000 income tax code changes a year. With thousands of tax jurisdictions and various regulatory requirements, staying compliant with tax code updates published only in small print or press releases that fly under the radar can feel impossible.
Beyond considering thousands of changes in tax codes, payroll providers must also comply with the Bank Secrecy Act and its Anti-Money Laundering (AML) regulations. Payroll providers are considered Money Service Businesses (MSBs), which are required to register with the Financial Crimes Enforcement Network (FinCEN) and comply with AML rules and regulations.
An AML Compliance Program is a complex and time-consuming requirement for MSBs to implement. MSBs are regulated by the federal government and have a legal obligation to ensure they are not facilitating money laundering and other illegal activity, such as terrorist financing. Compliance Officers must set up a comprehensive Compliance Program, with independent risk assessments, transaction monitoring, Suspicious Activity Reports (SARs), and more.
MSBs are required to identify and validate who their customers are. This entails the collection and validation of personal identifying information as well as additional monitoring of the customer and their activity.
Payroll providers must continuously monitor and screen customers. Both businesses and individuals must be screened to ensure the provider is not providing services to a business or individual sanctioned by the United States. These lists can update frequently and without notice so it’s pertinent that a provider’s entire customer base is rescreened on an ongoing basis. Common names can cause false-positives that a team will need to manually investigate and clear before servicing.
In addition to watchlist screening, a compliance program entails compiling and analyzing your data to risk score your customers, setting up transaction alerts for unusual activity, and reporting suspicious activity to FinCEN. Hours of engineering, data, and operational resources are needed to not just set this up, but also to maintain and continuously improve upon your program.
Failure to implement proper Know Your Business (KYB) or Know Your Customer (KYC) procedures can result in the loss of good customers, monetary fines, loss of business banking partnerships, and irreversible damage to an MSB’s reputation.
These KYC and KYB compliance requirements can be especially burdensome for businesses with flex workers. Providers need to onboard new employees quickly while staying in compliance with AML regulation so flex workers can take a shift as soon as possible.
Meeting such requirements for most payroll providers can be expensive and cause potential delays. For providers who serve flex workers, or employees who plan to work short-term jobs for a gig at a time, the manual operational load of constant KYC and KYB compliance is unnecessarily burdensome and risky.
At Zeal, our commitment to compliance allows our partners to focus on the work that matters, ensuring their businesses and employees are paid correctly and on time, every time. Our in-house compliance teams and payroll and tax specialists provide complete support once our partners are up and running so they can scale confidently.
To learn more about payroll compliance or how Zeal can help you offer payroll with Zeal, get in touch with our Partnerships team.
Mistakes that trigger compliance audits/fines include: failing to complete/re-verify I-9/E-Verify for employees, misclassifying employees as contractors (or vice versa), not withholding appropriate taxes, failing to report new hires, not paying minimum wage or overtime, failure to provide required pay-stubs, missing child-support garnishments for contractors, incorrect 1099 or W-2 filings. Fines vary but can be significant (e.g., more than $28,000 per ineligible W-2 hire).
If your business model, client demands, or regulatory environment changes and you decide to transition workers from 1099 to W-2 (or the reverse in rare cases), you need a solution that handles new onboarding (tax/wage/eligibility paperwork), modifies pay/deductions workflows, updates your pay-roll tax engine, and adjusts your billing/invoicing logic. A flexible platform built for both classification types ensures you avoid patchwork systems. Zeal supports both W-2 and 1099 at scale.
For on-demand marketplaces and staffing operations where speed matters (shifts change, high turnover), you should aim to complete onboarding (document collection, eligibility check, tax forms) in minutes, not days. A streamlined and unified mobile/remote onboarding flow helps. Zeal supports mobile remote I-9/E-Verify and e-signature onboarding to accelerate this.
Many general payroll vendors are built for “one employer, one location, one schedule” scenarios — not high-volume, many-workers, multi-location gig models. They often lack: onboarding workflows tailored to high-volume staffing, automated classification support (W-2/1099), multi-jurisdiction tax engines, fast payouts (instant, paycards), billing and receivable integration, and worker self-service portals. By contrast Zeal is built for staffing/gig scale.
In on-demand or staffing operations where a worker may live in one state, work in another, or travel across multiple jurisdictions in a week, compliance becomes significantly more complex. You must manage: minimum wage requirements differing by state/city, overtime rules by jurisdiction, tax withholding/residency/work-state issues, unemployment/worker‐comp jurisdictional issues. A robust solution will dynamically capture worker location info at onboarding and at each shift, determine applicable rules, and automate pay accordingly.
For W-2 employees you must ensure:
Also ensure you capture worker’s multiple work locations or shifts if they cross jurisdictions (for tax/withholding purposes).
At minimum you should:
You may also want to collect a Form I-9 from your workers and have their employment eligibility verified through E-Verify. While this is not required we are seeing that enforcement of employment eligibility varies by administration.
Worker classification hinges on the “employee vs independent contractor” analysis. Under U.S. Department of Labor (DOL) final rule effective March 11, 2024 (regulation at 29 CFR 795), six key factors apply:
In staffing/gig firms you must apply this test consistently and document your decision. Misclassification can lead to compliance violations and major fines (for example, for missing minimum wage or overtime protections when a worker should have been W-2).
For staffing companies and marketplaces working with gig or on-demand labor, the onboarding phase is a critical risk point. Key risks include: mis-classifying a worker (i.e., treating a W-2 employee as a 1099 contractor), failing to complete a compliant I-9 / E-Verify check for W-2 workers, not collecting correct tax forms (W-4 for employees, W-9 for contractors), lacking documentation of worker certifications or licenses, and failing to collect or monitor multijurisdictional data (worker’s residence, work location, shift locations) that will affect tax & wage compliance. Additionally, companies can use the onboarding process to mitigate other compliance risks such as displaying labor posters and onboarding to faster payment methods. By automating onboarding workflows you reduce manual errors, accelerate worker start-time, and build a more compliant foundation.
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