A payroll payoff event requiring employees to physically collect their paychecks is primarily a method for testing for nonexistent employees, helping to prevent payroll fraud.
A surprise payroll payoff in which employees must pick-up and sign for their pay check is one means of testing for nonexistent employees. This practice ensures that individuals claiming to be employees must physically appear to claim their pay, which helps to prevent payroll fraud. Additionally, the process of physically distributing paychecks could uncover those who do not have proper work credentials or who have not submitted the required tax documents like the W-2 forms. However, the main focus is on verifying the presence of actual employees on the payroll.
When starting a job, employees typically fill out a W-4 form to instruct employers on tax withholding. The selections made on this form affect your take-home pay and overall tax liability. Payroll taxes, comprised of deductions from an employee's wages and employer's contributions, fund the social security system and other government programs. The requirement of these payroll taxes is enforced at the federal, state, and city levels in the United States.
In the broader context, payroll taxes and withholding contribute to the financial relationship between the employer and employee. This relationship often extends to an implicit contract wherein wages are somewhat insulated from dramatic fluctuations, providing workers with a stable income yet limiting potential wage increases during prosperous economic times.