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Technology & SaaS Companies: Payroll Mistakes to Avoid (2026)
The costliest payroll mistakes in technology companies are misclassifying software engineers and product managers, leaving equity compensation handling out of the overtime regular rate, and missing the technology company tax rule cited here. BEG: $45 per employee per month inside the payroll software you already use, live in 3 to 5 days.
Mistake 1: classification
Job titles do not determine exemption status. To be exempt as a computer employee, the worker's primary duty must consist of systems analysis to determine specifications, the design, development, testing, or modification of computer systems or programs, or work on programs related to machine operating systems.
Mistake 2: hours and the regular rate
Computer systems analysts, programmers, software engineers, and similarly skilled workers are exempt from minimum wage and overtime under sections 13(a)(1) and 13(a)(17) if they meet the duties test and are paid either on a salary or fee basis at the standard salary level or on an hourly basis at not less than $27.63 an hour.
The computer employee exemption does not cover employees who manufacture or repair computer hardware, or workers such as engineers and drafters whose jobs depend heavily on computers but who are not primarily engaged in systems analysis, programming, or similarly skilled computer work.
Mistake 3: the technology company tax item
The federal income tax withholding rate on supplemental wages, which include bonuses and commissions, is 22 percent, and 37 percent to the extent an employee's supplemental wages during the calendar year exceed $1 million. The 37 percent rate applies without regard to the employee's Form W-4.
What catches them
A pay code review at setup, an exemption file per employee, a regular-rate flag on every pay component, and a deposit calendar that does not depend on one person remembering. Failure-to-deposit penalties run 2 to 15 percent; back overtime runs at time and one half plus an equal amount in liquidated damages.
The rules behind this page, with sources
General information, not legal advice. Every rule below was read on the agency page linked next to it.
- Job titles do not determine exemption status. To be exempt as a computer employee, the worker's primary duty must consist of systems analysis to determine specifications, the design, development, testing, or modification of computer systems or programs, or work on programs related to machine operating systems. [DOL Fact Sheet #17E]
- Computer systems analysts, programmers, software engineers, and similarly skilled workers are exempt from minimum wage and overtime under sections 13(a)(1) and 13(a)(17) if they meet the duties test and are paid either on a salary or fee basis at the standard salary level or on an hourly basis at not less than $27.63 an hour. [DOL Fact Sheet #17E]
- The computer employee exemption does not cover employees who manufacture or repair computer hardware, or workers such as engineers and drafters whose jobs depend heavily on computers but who are not primarily engaged in systems analysis, programming, or similarly skilled computer work. [DOL Fact Sheet #17E]
- The federal income tax withholding rate on supplemental wages, which include bonuses and commissions, is 22 percent, and 37 percent to the extent an employee's supplemental wages during the calendar year exceed $1 million. The 37 percent rate applies without regard to the employee's Form W-4. [IRS Publication 15 (2026)]
Read the full guide to how to correct a payroll error, and the rest of the technology company payroll library.
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Frequently Asked Questions
What is the most common classification mistake in technology companies?
Job titles do not determine exemption status. To be exempt as a computer employee, the worker's primary duty must consist of systems analysis to determine specifications, the design, development, testing, or modification of computer systems or programs, or work on programs related to machine operating systems.
What wage and hour mistakes does DOL see in technology companies?
Computer systems analysts, programmers, software engineers, and similarly skilled workers are exempt from minimum wage and overtime under sections 13(a)(1) and 13(a)(17) if they meet the duties test and are paid either on a salary or fee basis at the standard salary level or on an hourly basis at not less than $27.63 an hour.
Which technology company tax rule is most often missed?
The federal income tax withholding rate on supplemental wages, which include bonuses and commissions, is 22 percent, and 37 percent to the extent an employee's supplemental wages during the calendar year exceed $1 million. The 37 percent rate applies without regard to the employee's Form W-4.
What does managed payroll cost for a technology company?
$45 per employee per month, all-inclusive, inside the payroll software you already use, with no monthly minimum. Equity compensation handling, remote employee multi-state tax and contractor classification are configured at setup, not billed as add-ons.
Related Resources
Anthony leads payroll solutions at Business Executive Group, a national managed payroll firm serving businesses across industries including Technology & SaaS Companies. BEG manages payroll at $45 PEPM, all-inclusive, with deep expertise in compliance, multi-state filing, and industry-specific payroll requirements. Get instant pricing at beghr.com.
Authoritative source: U.S. Department of Labor: Wage and Hour Division
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