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The Importance of Payroll Compliance When Working in Different States

by Pam RamacciatoMarch 22, 2017 8:00 AM

Non-compliance can cost businesses a lot of money. If you’ve read our posts before, you’ll know that the benefits of staying compliant are things that we’ve harped on before, but it’s worth repeating, especially when small business owners pay billions of dollars each year in payroll tax penalties. It’s especially true when it comes to something as problematic as multi-state payroll compliance.

The problem with multi-state payroll compliance is that the rules you followed for your home state may not be the same as the other states where you do business. Each state has different payroll standards, meaning that you may not be nearly as compliant as you thought you were.

Image of money on states. Learn about multi-state payroll compliance issues.

Potential Multi-State Payroll Compliance Issues to Consider

It can already be tricky to keep track of compliance needs, but adding multiple state locations just amplifies the issue. A few such areas of concern include:

  • Minimum wage
  • Income tax withholding
  • Leaves of absence regulations
  • Common ownership concerns
  • Workers Comp regulations

We’ll use minimum wage as an example of just how quickly multi-state considerations can get out of hand. Let’s say that you’re a business based in Ohio that hires a lot of employees at minimum wage. If you have an operation in California, you’re going to be expected to pay California’s minimum wage of $10.50 an hour instead of Ohio’s $8.15 as of 2017, even if you’re mainly an Ohio-based business.

While that may seem simple enough, there’s more. Twenty states increased their minimum wage rates at the beginning of this year. Also, you may not know that there are some cities and counties that observe different minimum wages than their state’s standard. For example, Cupertino, Calif. follows a $12 minimum wage as of Jan. 1, 2017, and they’re not alone. As of March 9, 2017, the U.C. Berkeley Labor Center lists 41 counties and cities across the country that observe a different minimum wage than the rest of their respective states.

There are also other considerations than just the minimum wage, such as overtime pay rates. According to the Department of Labor, Minnesota’s basic minimum rate changes depending on whether your enterprise has annual receipts of more than or less than $500,000. While premium pay after designated hours kicks in after a 40-hour work week, it doesn’t kick in until after 46 hours in Kansas. Each state has their own specific differences that can create a huge problem for businesses who just based their payroll compliance on their home state.

Avoid Payroll Compliance Issues Across Multiple States

As you can tell, keeping track of payroll compliance across multiple states can be extremely complicated. It’s critical that you notify your payroll team about work situations in different states as soon as you can. That way whoever handles your payroll tax management can get a head start so that you can avoid costly non-compliance issues.

If you’re a small business owner, there’s a chance that payroll compliance responsibilities fall on your shoulders, or on someone else who isn’t necessarily trained to handle payroll. If the thought of managing multi-state payroll compliance seems too intimidating, we’re happy to help.

As a Professional Employer Organization, we have the experts you need for payroll tax management. Contact us today to talk with one of our experts about how multi-state compliance issues may affect your business and how we can help you stay compliant.

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