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  • As an employer, understanding how to calculate payroll tax and income tax deductions is essential to running a compliant and efficient business.. A major part of that is making sure every employee’s paycheck has the correct taxes and other deductions withheld. Below is an overview of some of the most important payroll deductions for 2025, along with pointers on how to calculate them.

    Calculating Payroll Taxes for Employees

    The term payroll tax typically refer to Federal Insurance Contributions Act (FICA) taxes, which include both Social Security and Medicare contributions. For 2025, the employee-share rates remain:  

    • Social Security: 6.2% of gross wages
    • Medicare: 1.45% of gross wages

    This totals 7.65% for most employees, withheld each pay period. For example, if someone’s gross pay is $1,000:

    • Social Security withheld = $1,000 x 6.2% = $62
    • Medicare withheld = $1,000 x 1.45% = $14.50
    • Total Payroll Tax withheld = $76.50

    Meaning every paycheck for that employee will have $76.50 withheld.

    How to Calculate Federal Income Tax Deductions

    Unlike the flat rates for Social Security and Medicare, income tax deductions are determined by the employee’s Form W-4 and IRS tax tables. The IRS has 2025 Form W-4 instructions and updated tables in Publication 15-T. You can generally calculate withholding using either the wage bracket method or the percentage method.

    Wage bracket method

    This method uses easy-to-read tables. You simply:

    1. Look up how frequently you pay employees (weekly, biweekly, semimonthly, monthly, etc.).
    2. Choose the correct table based on the employee’s filing status (from the Form W-4) and whether they’ve checked the Step 2 box.
    3. Find the wage range in the table; the table cross-references the amount of tax to withhold based on any additional adjustments entered on the W-4.

    Percentage method

    This approach involves a bit more math, but it may be more flexible if your payroll amounts frequently exceed the ranges in the wage bracket tables. You will:

    1. Convert allowances (if you still have employees on 2019 or earlier W-4s) or interpret the relevant steps if they’re using a 2020 or later W-4. (For 2019/pre-2020 forms, note that the IRS publishes a “computational bridge.”)
    2. Subtract any allowances (or standard W-4 adjustments) from gross wages to get the taxable portion for that pay period.
    3. Apply the percentage method table.
    4. Add or subtract any additional amounts indicated on the employee’s W-4.

    Understanding State and Local Payroll Tax Withholding

    State And Local Taxes

    Federal income taxes aren’t the only concerns; many states and local governments require payroll tax withholding for state and local income tax deductions.. The method differs from state to state:

    • Some states (e.g., Florida, Texas) do not impose state income tax, meaning you only handle federal deductions.
    • Others (e.g., Ohio, New York) require both state and sometimes local income tax withholdings.
    • Check your state government’s website or official documentation for the 2025 rates and instructions.

    Additional (Voluntary) Paycheck Deductions

    In addition to required taxes, some income tax deductions are voluntary and may be either pre-tax (which reduce taxable income) or post-tax: These can include:

    1. Health insurance premiums for medical, dental, vision, etc.
    2. Retirement contributions (e.g., 401(k), IRA) chosen by the employee.
    3. Life insurance premiums paid via payroll deduction.
    4. Job-related expenses if you have agreed to recoup certain business expenses through paychecks (where legal).

    Ensure that these are set up correctly in your payroll system. Some might be pre-tax (reducing taxable wages), while others are post-tax.

    Why Payroll Tax Compliance Matters

    Staying accurate and up to date on payroll laws and tax tables is vital. Miscalculating payroll tax or income tax deductions can result in underpayment or overpayment, leading to potential penalties from the IRS or your state’s tax authority. It also impacts employees directly; over-withholding means smaller paychecks, while under-withholding can mean a big tax bill in April.

    • You’re responsible for timely depositing withheld taxes with the IRS, as well as filing the proper forms (like Forms 941 or 944 for federal payroll taxes).
    • For 2025, be sure you’re referencing the latest versions of IRS Publication 15 (Circular E) and Publication 15-T (2025) for the updated wage bracket or percentage method tables.

    Let GMS Simplify Your Payroll Tax Process

    Handling small business payroll taxes can be daunting, especially as forms and laws evolve each year. Group Management Services (GMS) can take the guesswork out of payroll tax and income tax deductions, ensuring accurate withholdings, filings, and tax deposits. If you’re:

    • Worried about maintaining compliance for 2025.
    • Unsure how to handle different forms (e.g., older 2019 W-4 forms vs. new 2025 W-4 forms).
    • Concerned about multi-state or local tax withholding.

    Group Management Services (GMS) can help streamline all aspects of your payroll tax management, from accurate withholdings to timely tax filings, allowing you to focus on growing your business. Contact GMS to learn more about our payroll tax services and how we can help you navigate the complexities of income tax deductions.

  • The Department of Labor announced a proposal in early March to change the salary-level threshold for white-collar exemptions. This move comes more than two years after a federal judge blocked another attempt to update the threshold for overtime eligibility, although the details of the proposal differ from the 2016 proposal.

    The current salary-level threshold for white-collar exemptions is $23,600 annually, which equates to $455 per week. The DoL’s new proposal seeks to increase the threshold to $35,308 annually ($679 per week) – nearly halfway to the DoL’s 2016 target threshold of $47,476 ($913 per week).

    While the new proposal is notably lower than the blocked attempt, it still marks a nearly 50 percent increase from the current wage threshold. As a result, the DoL “estimates that 1.1 million currently exempt employees who earn at least $455 per week but less than the proposed standard salary level of $679 per week would, without some intervening action by their employers, become eligible for overtime.” That’s a notable change that can have a direct impact on your employee’s compensation.

    Businessman contemplating options regarding the new salary-level threshold proposal from the Department of Labor. 

    Breaking Down the New Overtime Salary-Level Threshold

    The quick explanation of the new proposal is that employees who make less than $35,308 annually or $679 per week may be eligible for overtime pay. Overtime applies to any hours worked past 40 in a given week and will be compensated at a rate of one-and-a-half times an employee’s standard rate of pay. 

    Not all employees would be eligible for overtime pay, however. The job duties of an employee play a major part in deciding whether someone is eligible. As with the current salary-level threshold, employees must pass three tests to qualify for a white-collar exemption from overtime pay:

    • The salary basis test – Exempt employees must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed
    • The salary level test – Exempt employees must be paid at least a specified weekly salary of $679 per week
    • The duties test – Exempt employees must primarily perform executive, administrative, or professional duties as defined by DoL regulations (duty definitions can be found on the DoL website)

    The new proposal also increases the salary level for “highly compensated employees” (HCE) from $100,000 to $147,414 per year. This group faces what the Society for Human Resources Management (SHRM) calls a “relaxed” duties test. As such, these employees are exempt from overtime if their primary duty is office or nonmanual work and routinely “perform at least one of the bona fide exempt duties of an executive, administrative, or professional employees.”

    It’s important to note that the term “white-collar exemptions” is used, as the new proposal maintains overtime protections for “blue collar” workers who perform tasks that involve “repetitive operations with their hands, physical skill and energy.” This includes no changes in overtime eligibility for any of the following professions:

    • Police officers
    • Fire fighters
    • Paramedics
    • Nurses
    • Laborers
    • Non-management employees in maintenance, construction, and similar occupations (carpenters, electricians, mechanics, etc.)

    Another difference with the new proposal is that there are no plans to make automatic threshold updates in the future. This is a notable departure from the 2016 proposal, in which the threshold would change every three years to match the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region. This means that if the proposal were to go into effect, it would only lead to the $35,308 ($679 per week) threshold and not any pre-planned adjustments.

    What Can Small Business Owners Do About the New Overtime Proposal?

    It’s currently a waiting game to see whether this new DoL proposal will go into effect or not. Like the 2016 proposal, the new salary-level threshold could run into some roadblocks. Despite this, it’s best to plan ahead just in case the proposal becomes reality. 

    Your options are largely the same as they were back in 2016, some of which may be more feasible than others for your company. The first is to pay newly-eligible employees overtime pay for applicable hours. Another is to limit employee hours to 40 per week to stop any chance of overtime pay. Each route has drawbacks, as paying overtime will increase your payroll and limiting hours may lead to decreased productivity thanks to change in overall work hours. 

    If neither of those ideas sound appealing, there are some other alternatives. One possible way to mitigate the impact of overtime pay is to raise the wage of workers who are close to the salary-level threshold. For example, if an employee regularly worked extra hours makes $34,000 per year, you could increase his pay to $36,000 per year. You’ll need to do the math to see if the change in pay outweighs the potential costs of overtime, but this method can help you control costs while still offering some reward to an employee.

    A more cost-effective, but less popular, alternative is to lower the salaries of newly-eligible overtime employees. This will help you account for overtime costs, but employees won’t approve of decreased pay if they’re eligible for overtime.

    Protect Your Business Through Preparation

    It’s important to take any proposed regulations seriously, especially when you can face a civil monetary penalty of $2,014 for repeated or willful violations of overtime rules occurring after Jan. 24, 2019. There are still plenty of steps the DoL’s new proposal needs to take, but it’s always good to have a plan in place just in case.

    Unfortunately, there’s not always the time or means to stay ahead of new regulations or other changes that could impact your business. That’s why small business owners turn to GMS to help them stay compliant with current laws and prepare for future legislation and regulations. Our team of experts and integrated HR system allows us to take on the administrative burden of small business payroll management and other crucial human resources tasks.

    Ready to prepare for your business’ future. Contact us today to talk to one of our experts about how we can help.

  • Determining pay frequency can be challenging for business owners. While most employees prefer to be paid more often, a higher pay frequency can cost employers. Not to mention, there are federal and state laws that set standards for how employees are paid. That’s why exploring the different pay period options and federal and state payday laws is critical to help you choose the right pay frequency for your business and employees.

     Pay day.

    Pay Periods

    A pay period is a recurring length of time that determines how often employees are paid. Depending on your state, there are several to choose from, and each has its pros and cons (but we’ll get to that later). The typical options for paying employees are:

    • Weekly: This is usually on the same day of the week, like Friday, for the previous week’s work. Employees are paid 52 paychecks a year.
    • Biweekly: Employees are paid every other week, either for the previous two weeks or the two weeks before that. This pay period results in 26 paychecks a year.
    • Semimonthly: Workers are paid twice a month, usually on the first and 15th each month, receiving 24 paychecks a year.
    • Monthly: This is typically either on the last day of the month or the first day of the following month. Employees receive 12 paychecks a year.

     

    Federal Pay Frequency Laws

    Federal law does not set requirements for how often you have to pay employees—that’s left up to the states. However, federal laws do say that employers must keep a reliable and consistent pay frequency. This means that, for example, you can’t pay employees weekly one month and then biweekly the next.

    Under certain circumstances, you may be allowed to change your pay frequency. In order to do, so the following must apply:

    • You have a legitimate business reason.
    • The change is permanent.
    • You are not avoiding overtime or minimum wages.
    • You don’t unreasonably delay payment.

     

    State Pay Frequency Laws

    Almost every state has pay frequency laws indicating how often you should pay employees. Many states require a monthly, semimonthly, biweekly, or weekly payroll as the minimum frequency for paying employees. Keep in mind, you can always pay employees more often than the state requires.

    For example, Ohio requires a semimonthly payroll, but that is not the only pay frequency you can choose in that state. You can also pay employees biweekly or weekly, as long as you at least pay employees semimonthly. Or, in New Jersey, you can pay executive and supervisory employees at least once a month but must pay all other employees semimonthly at minimum. Find your state in the map below to see what the minimum pay frequency is for your business.

     

     

    Choosing a Pay Frequency

    After looking at your state’s pay frequency laws, you’ll have to determine how often to pay employees. While employees typically prefer to be paid more frequently, you’ll also have to consider factors that affect your business.

    Payment methods

    Depending on the way your employees are paid, certain payment methods are more of a hassle than they’re worth. For example, if you’re still using outdated methods like checks or cash to pay employees, then upping your pay frequency means spending more money on printing supplies and more time on bookkeeping. Even with direct deposit, higher pay frequency can mean more transaction fees if you’re not utilizing online payroll software.

    Employee benefits

    You’ll also want to factor in benefits. Employee benefits like health insurance typically run on a monthly basis, so paying employees monthly or semimonthly makes calculating voluntary paycheck deductions easier than if you were to pay on a biweekly or weekly schedule.

    Overtime

    While overtime isn’t a factor for salaried employees, it can be difficult to track for hourly workers if they’re paid on a semimonthly or monthly basis when the pay date falls in the middle of the week. For example, if employees are paid on a Wednesday, it can be difficult to calculate overtime for that week because that week’s pay is split into two different pay periods.

    Business owners typically find it’s best to pay different employees at different times. Many choose to pay salaried employees on a semimonthly or monthly basis, and weekly or biweekly for hourly workers.

     

    Payroll Services

    For small business owners, managing payroll can be one of the most time-consuming and challenging tasks there is. Need assistance? Outsourcing payroll administration to a professional employer organization (PEO) like Group Management Services (GMS) can ensure your employees are paid on time, every time. From electronic payroll processing to software to taxes, GMS takes an active approach managing payroll, so you can spend the extra, time, money, and energy growing your business. In addition to payroll services, GMS offers a full suite of HR services that compliment payroll administration, including human resources, risk management, employee benefits, and more.

    Contact GMS today to see how we can help manage payroll at your organization.

  • After some big changes in 2019, it’s apparent that New Jersey takes wage theft very seriously. The state adopted the new Wage Theft Act (WTA) and amended its Wage and Hour Law back on Aug. 6, 2019, giving it some some of the toughest laws in the nation regarding wage and hour enforcement.

    The new WTA has a direct impact on business owners in New Jersey, but it’s important for those outside the state to be aware of the updates as well. The Garden State is a common testing ground for legislative changes, so other states may adopt similar laws over time. As such, let’s break down exactly what New Jersey’s wage and hour enforcement laws mean for business owners (and what they can do to avoid issues).

    A small business owner’s hand caught in a trap after attempting wage theft.

    How the WTA Impacts Business Owners

    The adoption of the WTA places a lot more pressure on employers when it comes to correctly paying wages to employees. Simply put, the new rules are clearly designed to discourage owners from committing wage theft – and severely punish those who do, unwittingly or not. There are a few notable takeaways that owners should know:

    The WTA increases how much employees can earn back

    Employers who owe workers will have to pay back more to the affected employees than in the past. These employees can claim increased damages for any missing overtime or other hours, which can total up to 200 percent of the unpaid wages in addition to the original pay. That means employers can be on the hook for three times back wages. Employers found guilty of wage theft may also have to pay reasonable costs and attorney fees for the affected employee, making the situation even more costly.

    The WTA increases the statute of limitations for back pay

    Previously, any claims for missing pay had to be made within two years of the incident. The WTA tripled that window, which means that aggrieved workers can now fight for back pay within a six-year time period.

    The WTA offers more protection against retaliation

    The new legislation makes a concerted effort to protect employees when they inquire about missing pay. Any adverse action – including discipline, demotion, or termination – made within 90 days of a complaint about their pay is automatically presumed to be a form of retaliation. The employer can appeal this presumption, but will need “clear and convincing evidence” to successfully argue that the adverse action was justified and not made in retaliation. Employers found guilty of retaliation must make right by the affected employee, which can include reinstating that person to his or her position if fired or demoted.

    The WTA enacts harsher financial and criminal penalties

    Not only does the WTA make it easier for employees to claim back pay, it also drops the hammer on businesses to deter them from making the same mistake again. Wage theft can result in both a notable fine and jail time, with increasing punishments for repeat offenders. The penalties are as follows:

    • First violation – $500 to $1,000 fine, imprisonment of 10 to 100 days, or both
    • Second violation – $1,000 to $2,000 fine, imprisonment of 10 to 100 days, or both
    • Third and subsequent violations – The employer is charged with a fourth degree crime and faces a $2,000 to $10,000 fine, imprisonment of up to 18 months, or both

    The WTA adds joint liability

    With the new rules, employers may also get in trouble even if they themselves didn’t commit wage theft. Violations committed by hired contractors make a business jointly responsible if any of these contractors commit anything deemed as wage theft or retaliation.

    Potential Danger Areas for Wage Theft

    Regardless of whether a discrepancy in an employee’s wages is a genuine accident or a purposeful act, New Jersey’s new rules are a clear indication that it’s more important than ever to accurately complete payroll. However, there are a couple instances where someone who isn’t a payroll professional could make a mistake. These can include:

    • Incorrectly paying the wrong rate for overtime hours
    • Not applying different hourly rates for employees who perform two different types of tasks
    • Making a mistake when calling or faxing in payroll numbers

    It’s also important to consider the potential aftermath of a wage theft violation. Not only would you have to deal with the WTA-mandated penalties, word of that violation can spread to other employees. Even an accidental case of wage theft can create distrust among your employees and cause employees to be hypervigilant in the future. People are very sensitive about their pay, and an upset workforce can lead to less motivated employees and can even force good talent to leave for what they perceive to be a safer workplace.

    Protect Your Business Against Accidental Wage Theft and Other Payroll Issues

    Whether your business is based in New Jersey or somewhere else, it’s crucial to carefully record and maintain payroll documentation and employee hours. Not only will proper payroll management help protect your business against costly penalties, it’ll also ensure that your employees get exactly what they should each pay period.

    Of course, accurate payroll administration is easier said than done for someone without an experienced background. Managing payroll and filing taxes is a time-consuming process even when done accurately, which can take time away from other key business functions. Fortunately, GMS can help you manage your company’s payroll while you focus on growing your business.

    At GMS, we have the experts and processes in place to diligently process your payroll, manage and file taxes, and protect your business from costly compliance issues. We’ll do an HR analysis and identify new policies and procedures to help you protect your business from any current or future issues. Contact our New Jersey office or one of our other locations today about managing payroll or any other critical HR function for your business.

  • The holidays are typically a time of joy and celebration, but they also require business owners to make some additional considerations about holiday pay. This type of pay makes it possible for employees to stay home for a selection of holidays and still get paid for those days. However, this benefit isn’t always a guarantee depending on the needs of your business. 

    Are you unsure about how to handle holiday pay for your business? We broke down some common holiday pay questions to help you determine how holiday pay can affect your business and the best plan of action for your specific situation.

    A piggy bank with Christmas lights representing holiday pay. 

    Do Businesses Need to Provide Holiday Pay?

    While many businesses offer holiday pay, it is not a legal requirement. According to the Department of Labor, “The Fair Labor Standards Act (FLSA) does not require payment for time not worked, such as vacations or holidays (federal or otherwise).” In essence, a holiday is treated just like any other workday. As such, employers would only pay non-exempt workers for the time they worked (exempt employees would simply receive their normal salary regardless of whether they had the holiday off or not).

    While holiday pay isn’t required, employers may opt to provide it to employees. The terms of the holiday pay is subject to an agreement between the employer and its employees, although you aren’t required to pay a premium rate specifically for holiday pay.

    Do Businesses Need to Provide Time Off for Holidays?

    As with holiday pay, employers are not required by federal law to provide time off on the holidays and may choose to close for certain holidays on their own. Holidays are considered regular workdays, so any employee who works those days is entitled to normal pay as opposed to overtime pay. 

    The one exception in regards to time off for certain holidays is that employers are expected to provide reasonable accommodation for any employees that observe a religious holiday. One way to accommodate this would be to provide floating holidays that allow workers to use their time off for an observed holiday. Other options include allowing employees to take a vacation day or unpaid time off for a specific holiday unless the employer can show that their absence would create undue stress for the business.

    What are the Benefits of Offering Holiday Pay?

    There are a couple reasons why you may decide to provide holiday pay. One reason is to give workers a chance to celebrate various holidays with their family and friends without having to worry about how that time off will affect their paychecks. By offering some of these days off along with holiday pay, you can show your employees some appreciation for their hard work throughout the year.

    Another reason why you’d offer some holidays off with pay is to make your company appear more competitive in the hiring process. While a holiday may be the same as any other day in terms of pay, they can feel a lot more important to your employees. Offering those days off with pay can help make a difference when trying to attract and retain talented people.

    Are All Employees Entitled to Holiday Pay if It’s Offered by the Company?

    If you decide to offer holiday pay, you don’t have to provide it to all your employees. As long as the basis of choosing who gets holiday pay isn’t discriminatory, you can provide the benefit to some employees and not others. For example, you can opt to provide holiday pay to only full-time employees or office workers if you so choose. However, you can’t base your decision on a protected classification such as age or race.

    How Should I Set up a Holiday Pay Policy?

    Since you dictate the specifics of your holiday pay policy, it’s important to include that policy in your employee handbook and communicate it to your employees. This will allow you to clearly list the exact details of your policy if you decide to provide certain holidays off and if you choose to provide holiday pay. The details of this policy should include:

    • A list of dates designated as holidays (whether it follows the list of federal holidays or a modified list)
    • Which employees are eligible for holiday pay
    • The rate for holiday pay or if there are any bonuses attached to working a holiday
    • How a paid holiday works if they fall on a weekend

    What’s the Right Call for My Business?

    Ultimately, the decision of whether you want to provide holiday pay or not is up to you. Some businesses that employ multiple non-exempt employees may not have the funds to provide pay for days off, while others may require people to regularly work on holidays. Each case is different, so it’s best to find an option that makes sense for your business.

    Running a business involves making several important decisions. This responsibility requires a lot of time and effort from any business owner, but you don’t need to handle this load alone. At GMS, our HR experts can help you manage a variety of key business functions ranging from payroll to benefits administration. When you need assistance, we can provide the services and expertise necessary to keep your business prepared for the future.

    Ready to talk to an expert about holiday pay or any other business need? Contact GMS today to talk to us about how we can help your make your business simpler, safer, and stronger.

  • It’s already difficult to manage payroll for a small business, but it can get even trickier if you have employees who work out of state. Whether you have remote employees, live near a border, or have any other reason for an employee to complete their work in a different state, there are certain rules set by the Department of Labor (DOL) and other federal and state agencies that you need to follow when handling payroll for those workers.

    A map of the U.S. for out-of-state employees with certain payroll requirements.

    Who is Considered an Out-of-State Employee?

    Identifying an out-of-state employee is pretty simple – it’s an individual whose primary work is completed outside of the state where your business is registered. However, the tax implications of out-of-state employees aren’t quite so simple.

    An employee’s resident state is where that person makes their permanent home. On the flip side, a nonresident state is any state where that employee commutes to or spends some time in for work. While it may be easy to assume that out-of-state employees live and work remotely in their resident state, that’s not necessarily the case. Any of the following workers count as an out-of-state employee.

    • Someone who lives and works in a state outside of your business’ registered state
    • Someone who lives in the same state as your business, but travels to and works in another
    • Someone who lives outside of your business’ state, but travels to a separate state and works there

    For example, let’s say your business is registered in Ohio and you have an employee who lives and works remotely in Florida. That individual is an out-of-state employee. However, let’s pretend that the employee lives right by the Ohio border and rents office space in the Buckeye state. In this case, the employee would technically be an in-state employee since he or she completes his or her primary work in Ohio, despite it not being the resident state. There’s also the case that if your employee lives in Ohio, but travels to and works in Michigan, that person is an out-of-state employee. 

    In general, an employee whose primary work is not in your business’ state is essentially an out-of-state worker. This makes it important to ask your employer where they perform the majority of their work – the answer will play a big role come tax time.

    Key Differences When Handling Payroll for Out-of-State Employees

    Once you’ve identified which of your employees qualify as out-of-state workers, it’s time to handle your payroll. When it comes to out-of-state employees, there are three big steps you need to take.

    Register with any necessary state tax agencies

    While your business is already registered in your home state, that’s not enough for employees in other states. You’ll need to register your business with the tax agency of every state where any official employees complete their primary work, whether that’s one additional state or several. 

    You’ll also need to check with that tax agency to see if you’ll also need to register with that state’s labor and unemployment agency. If not, that state government may come calling at some point, and they won’t be pleased.

    Follow the local laws of applicable states

    While you may understand all of your state’s laws regarding payroll policies, outside regulations can create a whole new challenge. There are several different pay and labor laws that can impact your out-of-state employees’ paychecks. As such, it’s important to make sure you look into several different areas to see if you need to modify your payroll.

    Minimum wage

    If you have out-of-state employees who make minimum wage, you’ll need to make sure that you don’t just follow your own state’s rate. For example, an out-of-state employee who works in Michigan is entitled to $9.65 an hour, so that person won’t be pleased if you pay them at Ohio’s $8.70 rate.

    Certain states also have special rules aside from flat rates or have plans to escalate rates over time. South Carolina has no state minimum wage law, but employers that fall under the Fair Labor Standards Act are required to use the federal rate of $7.25. New Jersey plans to increase its rate each year until it hits $15 per hour in 2026. If you have an employee in another state, you’ll need to pay close attention to the DOL’s updated list of minimum wage laws to make sure you don’t miss a special rule or accidentally get caught paying an old rate.

    Pay frequency

    Depending on where your employee works, he or she may have a different payday than the workers in your state. Certain states have set requirements on how often you should pay employees, while others give owners leeway into setting paydays, whether it’s weekly, monthly, or some other option. The DOL tracks each state’s payday requirements, including if employers need to provide written notice or seek permission for certain pay periods.

    Overtime

    There are states that simply observe the federal overtime rules, but others apply their own laws that can add an extra wrinkle to your payroll. Some states like California have daily overtime laws that kick in when employees work more than 12 hours in a day. Others may set different weekly hour requirements. In general, the DOL notes that if state and federal rules conflict with each other “the employee is entitled to overtime according to the higher standard.” Regardless, you’ll want to check with any applicable state labor office to get a definitive answer on your obligations.

    Workers’ compensation and disability insurance

    Like the other considerations, you’ll need to check with your employee’s state to see if it has any notable differences in purchasing workers’ compensation. Texas is the only state where workers’ compensation is optional, but other states can have some disparities from your local requirements. Some states, such as Ohio, require you to purchase insurance from a monopolistic state fund. Other states ramp up the penalties for not carrying workers’ compensation. Either way, check in with the official state organization to make sure your out-of-state employees are covered.

    There are also some locations that add some payroll requirements for disability insurance. Five total states require you to withhold state disability insurance from paychecks, which means you need to factor that into your calculations if you have an employee who works in the following places.

    • California
    • Hawaii
    • New Jersey
    • New York
    • Hawaii

    Paycheck delivery

    While the Fair Labor Standards Act (FLSA) requires that employers keep accurate records of every employee’s hours and wages, it does not require you to provide those employees with pay stubs. However, certain states have different standards for how employers need to deliver pay information. Depending on location, states may:

    • Have no requirements about providing pay information statements to employees.
    • Require employers to provide or furnish a statement of pay information that each employee can at least access electronically. The majority of states fall under this group.
    • Require employers to provide written or printed pay statements and give employees the ability to print electronic statements.
    • Give employees a chance to opt out of a paperless pay program and receive paper pay stubs.
    • Allow employees to opt-in to a paperless pay system if an employer wishes to offer one.

    In addition to paystubs, states can have differing rules on when you need to provide an employee’s final paycheck when he or she leaves or is terminated. As such, you’ll want to look up those terms if an out-of-state employee is no longer with your company.

    Withhold taxes based on your employee’s work location

    In addition to workers’ compensation, overtime, and other key considerations, withholding taxes plays a major part in managing payroll. Depending on where employees work, you may need to withhold state and local income taxes from their paychecks if it’s required in your employee’s city or county. 

    As you’d expect, your withholding responsibilities depend on where your employee works. Seven states don’t have income taxes or only have them on dividend and interest income. As such, you wouldn’t need to withhold income taxes for an out-of-state employee who works in Florida or any of the other six states. As a bonus, you also won’t need to register with the tax agencies for states where you don’t withhold income tax.

    There are also 16 states that require employers to withhold local taxes in addition to income taxes. As such, you’ll need to research and withhold both taxes from paycheck based on that state’s rates.

    Reciprocal states

    If that doesn’t sound tricky enough, some states have tax reciprocity. Essentially, reciprocal states have agreements in place with other specific states that allow employers to withhold taxes based on the state of residence instead of where an employee works. As such, an employee can give you a reciprocal withholding certificate if they wish to request you withhold taxes for their home state instead of the work state if both locations have an agreement in place.

    Here’s a breakdown of existing reciprocal tax agreements, listed by an employee’s home state in bold. (Note: People who work in the District of Columbia can live in any state) 

    • Illinois – Iowa, Kentucky, Michigan, Wisconsin
    • Indiana – Kentucky, Michigan, Ohio, Pennsylvania
    • Iowa – Illinois
    • Kentucky – Illinois, Indiana, Michigan, Ohio, Wisconsin, West Virginia
    • Maryland – District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia
    • Michigan – Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin
    • Minnesota – Michigan, North Dakota
    • Montana – North Dakota
    • New Jersey – Pennsylvania
    • North Dakota – Minnesota, Montana
    • Pennsylvania – Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia
    • Ohio – Indiana, Kentucky, Michigan, Pennsylvania, West Virginia
    • Virginia – District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia
    • Wisconsin – Illinois, Indiana, Kentucky, Michigan
    • West Virginia – Kentucky, Maryland, Ohio, Pennsylvania 

    Feeling Overwhelmed? Simplify Your Payroll with GMS

    Whether you need to plan for out-of-state employees or simply need to manage payroll for your in-state office, the process is a lot of hard work. There’s also the issue that even after investing a lot of time in payroll, a simple mistake or two can lead to upset employees and non-compliance issues with various federal and state agencies.

    If you’re fed up with the time and stress involved with managing payroll, GMS can help. As a PEO, our experts can manage your company’s payroll, decreasing your workload and liabilities so you can focus on growing your business instead of calculating paycheck deductions.

    Ready to free up your calendar while streamlining critical HR functions? Contact us today to talk to one of our experts about your company’s HR needs.

  • In response to the economic impact of the COVID-19 outbreak, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. Among many different types of loans and incentives, the CARES Act introduced tax relief for businesses in the form of payroll tax credits, enhanced net operating loss (NOL) deductions, and payroll tax deferment. However, the payroll tax deferral section of the CARES Act raised several questions for small and medium-sized businesses, especially those that received loans from the Paycheck Protection Program (PPP).

    To help answer these questions, the IRS released guidance on April 10, 2020, regarding payroll tax deferrals. Here’s what business owners need to know when it comes to paying taxes on social security this year.

     Small business owner defers payroll taxes under CARES Act.

    What deposits and payments can employers defer?

    Section 2302 of the CARES Act enables employers to defer certain payroll taxes, specifically the employer contribution of Federal Insurance Contributions Act (FICA) taxes, otherwise referred to as the employer’s portion of social security taxes. Typically, employers are required to pay 6.2 percent of social security taxes for each employee’s covered wages on a semi-weekly or monthly basis.

    The deferral applies to deposits and payments of the employer’s share of the 6.2 percent social security tax owed for 2020. Without the CARES Act, this tax would have otherwise been required to be made during the period beginning on March 27, 2020, and ending December 31, 2020. There is no dollar cap on the total amount of an employer’s social security taxes that can be deferred.

    It’s important to note that the CARES Act does not cover other payroll taxes, such as the Medicare tax (1.45 percent) or the employee’s share of the social security tax. The CARES Act does, however, outline tax deferrals in an equivalent amount for self-employed individuals subject to the Self Employment Contributions Act (SECA) and employers and employees subject to the Railroad Retirement Tax Act (RRTA).

     

    When are deferred tax payments due?

    In order to avoid penalties, the deferred payments of the employer’s share of social security tax must be deposited by the following dates:

    • On December 31, 2021, 50 percent of the deferred amount must be paid.
    • On December 21, 2022, the remaining amount must be paid.

     

    Who is eligible to defer tax payments?

    All employers, regardless of size, may defer the deposit and payment of the employer’s share of social security tax. However, employers who received PPP loans become ineligible to continue deferring tax payments after receiving notice from the lender that the loan is forgiven. The Small Business Administration (SBA) says “the loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities” if you are able to maintain your workforce.

    For payments deferred through the forgiveness date, employers may continue to defer payments until the end of 2021 and 2022 as described above without incurring penalties for failure to pay. The CARES Act also states that employers who have had a loan forgiven under the U.S. Treasury Program Management Authority are also ineligible to defer payments.

     

    Do employers need to make special elections to defer tax payments?

    No, employers do not need to make any special elections to defer deposits and payments for payroll taxes. The IRS will revise the Employer’s Quarterly Federal Tax Return (Form 941) for the second quarter (April through June 2020). The IRS says information will soon be released regarding deposits and payments otherwise due on or after March 27, 2020, for the first quarter (January through March 2020).

    Contact us if you have any HR or payroll-related questions on how to keep things running smoothly through this transition. 

  • As the Coronavirus impacts businesses everywhere, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide some financial support during difficult times. The $2 trillion Coronavirus stimulus package contains a $349 billion lending program for small businesses, along with other means of relief.

    For small business owners, this news provides a form of respite in a difficult time. Of course, now these employers may ask how these loans work and whether they can access them. Read on to find out if your business can apply for a loan and how they impact your operations.

    Money from a CARES Act small business loan granted to a business impacted by the Coronavirus. 

    Is My Business Eligible for CARES Act Loans?

    As long as your business has fewer than 500 employees, it’s eligible for a loan. The stimulus package applies to businesses from all states and territories and even extends to self-employed individuals, independent contractors, and sole proprietors. The CARES Act does prioritize certain types of businesses, such as those in under-served and rural markets or businesses that are less than two years old.

    What Financial Assistance is Available for the Coronavirus?

    The CARES Act lays out a couple of different forms of financial relief for small businesses. The most notable of these is the $349 billion Paycheck Protection Program, which will provide partially forgiven loans depending on how businesses use them.

    Paycheck Protection Program Loans

    According to the CARES Act, businesses can receive a loan of 2.5 times the businesses’ monthly payroll up to $10 million. The exact amount your company can receive is based on how much you paid your employees between Jan. 1 and Feb. 29, plus 25 percent of that total amount. These loans have a fixed interest rate of one percent regardless of business type (the final rates, underwriting standards and other terms and conditions are to be determined). The Small Business Administration also notes that it will “forgive the portion of the loan proceeds that are used to cover the first eight weeks of payroll and certain other expenses following loan origination” if you are able to maintain your workforce.

    In addition, the CARES Act incentivizes employers for using loans for what it considers allowable purposes. By doing so, your Paycheck Protection Program loan can be forgiven and you’ll only need to pay back accrued interest on your loan if you use the loan for the following:

    • Payroll costs
    • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
    • Employee salaries
    • Interest payments on any mortgage
    • Rent and utility payments
    • Interest payments on any other debt obligations that were incurred before Feb. 15, 2020

    Economic Injury Disaster Loans

    In addition to the $349 billion lending program, the CARES Act also allotted $10 Billion for the Small Business Administration’s (SBA) Economic Injury Disaster Loans (EIDLs). According to Forbes, the expanded provisions mean that:

    • EIDLS can be approved by the SBA based solely on your credit score (a prior bankruptcy won’t disqualify your business)
    • EIDLs smaller than $200,000 don’t need a personal guarantee for approval (real estate is also not required as collateral)
    • Borrowers can receive $10,000 in an emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage/lease payments, or repaying obligations that cannot be met due to revenue loss
    • EIDLs are now accessible for sole proprietors, independent contractors, tribal businesses, cooperatives, ESOPs with fewer than 500 employees, and all non-profits

    How Do I Apply for CARES Act Loans?

    If you’re want to apply for a Paycheck Protection Program loan, you can do so at any lending institution approved to participate by the SBA. You can apply for EIDLs online at the SBA website. 

    Contact us if you have any HR related questions on how to keep things running smoothly through these difficult times. 

  • After years of proposed changes to overtime laws, the Department of Labor (DOL)’s new updates finally went into effect at the beginning of 2020. The new salary levels make roughly 1.3 million more workers eligible for overtime pay. This news means business owners across the country may have some work to do to keep up with these changes.

    While the new standard salary level is a notable difference, it’s not the only change the DOL made. The department also revised rules for highly-compensated employees, regulations on overtime pay calculations, and other crucial details. To help, we broke down exactly what the DOL changed to help you know where your business stands and what you should do next.

    A clock tracking time for employees now eligible for overtime and papers documenting business numbers like regular rate calculations.

    Which Employees are Now Eligible for Overtime?

    Currently, the Fair Labor Standards Act sets the salary threshold for overtime at $35,568, which equates to $684 per week. Previously, the threshold was $23,660, or $455 per week. Those employees who meet the requirements set by the DOL are entitled to earn overtime pay for any hours worked past 40 in a given week. The pay for those extra hours is set at one-and-a-half times that employee’s standard rate of pay, which is the same as before. 

    In addition, highly compensated employees must now earn at least $107,432 ($684 of which must be paid weekly as either a salary or fee) instead of the old rate of $100,000. The new rules also maintain that employers can count annual (or more frequent) nondiscretionary bonuses and incentive payments as up to 10 percent of the minimum salary threshold.

    This salary threshold does not apply to all employees, however. The new rules still provide overtime protections to blue-collar workers, which means they are eligible for overtime even if they make more than $684 per week. Similarly, white-collar employees still do not receive these same overtime protections as long as they meet certain criteria for exemption. 

    In addition to meeting the new salary threshold, white-collar employees are considered exempt based on the duties they perform and if they’re paid a predetermined, fixed salary that is not subject to reduction. There were no changes to the preexisting duties tests, so owners can use the same criteria for exemption as in the past. For a detailed breakdown of those exact duties, check out our post on navigating white-collar exemptions.

    What Applies to Regular Rate Calculations for Overtime?

    Once you identify which employees are eligible for overtime pay, there’s still the matter of having to pay them for their extra hours. However, it’s not always easy to identify what affects an employee’s regular rate of pay.

    The FLSA identifies an employee’s “regular rate” as the rate that the employee is paid per hour. This doesn’t mean that the employee needs to be compensated on an hourly basis. Instead, it’s simply a calculation of how much the worker makes over the course of an hour compared to his or her salary, commission, and other compensation for all non-overtime hours worked in a workweek. As such, it’s relatively simple to calculate an employee whose compensation consists of only hourly pay – multiply that employee’s total hourly rate by the number of overtime hours worked.

    However, these calculations are much more complicated once you factor in other forms of compensation. The FLSA identifies that the rate should cover compensation that “include(s) all remuneration for employment paid to, or on behalf of, the employee,” such as bonuses, commissions and other forms of compensation. The DOL’s final rule added a list of exclusions that do not apply to overtime pay to address the confusion over what is considered part of the regular rate of pay. Per the DOL, these exclusions include:

    • The cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access/fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance
    • Payments for unused paid leave, including paid sick leave or paid time off
    • Payments of certain penalties required under state and local scheduling laws
    • Reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit; and clarifies that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments”
    • Certain sign-on bonuses and longevity bonuses
    • The cost of office coffee and snacks to employees as gifts
    • Discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples 
    • Contributions to benefit plans for accidents, unemployment, legal services, or other events that could cause future financial hardship or expense

    What Should an Owner Do About the New Overtime Rules?

    While some of the exact details have changed since the initial plans to update the overtime rules were announced back in March of 2019, our advice remains largely the same as it was that spring. First, you’ll need to evaluate your employees and identify who is now eligible for overtime and how much overtime you expect them to work (if any). If you do have employees who will now earn overtime, you’ll need to decide how you want to handle these new costs:

    • Pay newly-eligible employees overtime pay for the extra hours they accrue
    • Limit employees to 40 hours per week to prevent them from earning overtime
    • Determine how much certain employees would make in expected overtime and bump their pay to above the salary threshold if that ends up being less costly
    • Adjust salaries for new employees to account for expected overtime costs

    Each of these options has its own benefits and drawbacks, so deciding which route is best for your company largely depends on you and your workforce. Regardless of your decision, you’ll need to make sure that whatever you do ensures that your business is compliant with the new overtime rules so that you don’t open yourself up to thousands of dollars in fines and other potential penalties.

    How Can I Stay Ahead of New Regulations?

    The new overtime rules are just another major change that forces business owners to change how they manage their business. Unfortunately, you don’t always have the time or knowhow to keep up with new regulations. Fortunately, GMS can help you claim your time back and protect your business.

    As a premier PEO, GMS has the HR experts necessary to help you plan for the future and stay compliant with current laws. Our integrated HR system helps us take care of the administrative burden of payroll management, benefits administration, and other crucial human resources tasks for you so you have the time you need to focus on growing your business.

    Ready to stay ahead of new regulations and ease your administrative burden? Contact us today to talk to one of our experts about how we can strengthen your business.

  • Payroll forms can put a lot of pressure on business owners. When you’re in charge of a small business, it’s up to you to make sure that these forms are not only completed accurately, but on time as well. If you’re not careful, the penalties can range from $50 per faulty form all the way up to hundreds of thousands of dollars for notable violations.

    One of the biggest struggles of managing payroll forms is simply knowing which forms apply to your business and what they do. We’ve compiled a list of payroll forms that you’ll likely need to know for your small business and how they work.

    Form SS-4

    What is it?

    An SS-4 form is an application for an employer identification number (EIN). These unique nine-digit numbers are used to identify business entities and are required by most businesses before they can file and report taxes.

    When is it due?

    Unless you’re just about to start your business and haven’t paid anyone yet, you likely already have an EIN. There are some situations where you may need a new EIN, which the IRS has listed on its site. Aside from those scenarios, you won’t have to worry about refiling form SS-4 once you have your EIN.  

    Form W-2

    What is it?

    A W-2 form is a wage and tax statement that details what you paid an employee and the taxes you withheld from their wages for the government during the last calendar year. W-2s need to be completed for any employee who worked for you in the past year and copies should be sent to the Social Security Administration (SSA) and the employee listed on the W-2. In addition, you should hold onto a copy of each W-2 for at least years.

    When is it due?

    W-2 forms must be sent to your employees and the SSA by Jan. 31 of each year. Most state governments set the deadline at Jan. 31 as well, but make sure to check with your specific state tax agency in case your state’s date differs. 

    You can also request extensions to file forms with the SSA and distribute forms to your employees. For an SSA extension, you’ll need to fill out Form 8809 and submit it to the IRS between Jan. 1 and Jan. 31. The IRS will then either deny your request or grant you a single 30-day extension. 

    As for distribution to employees, you must mail a letter to the IRS to request an extension. The letter must explain why you need an extension, your name, business address, EIN, and signature. If approved, the IRS will grant you either a 15- or a 30-day extension.

    Form W-3

    What is it?

    W-3 forms are closely related to W-2s. Essentially, W-3s are transmittal forms that summarize the all the wage and tax statements made on the W-2s that a business files. In short, if you fill out 10 W-2 forms for your 10 employees, Form W-3 should represent a total of all 10 W-2s.

    When is it due?

    Form W-3 should be sent along with your W-2 forms to the SSA by Jan. 31. However, you don’t need to send W-3s out to your employees.

    Form 1099

    What is it?

    Form 1099 is used to report compensation for independent contractors and other nonemployees. If you pay a contractor more than $600 in a year, you need to report how much you paid them to both the contractor and the IRS so that these wages can be evaluated for tax purposes.

    When is it due?

    Contractors should receive their 1099 forms by Jan. 31. You also need to submit 1099 forms to the IRS by Jan. 31 as well.

    Form 1096

    What is it?

    Remember how the SSA requires a Form W-3 to show a total of all your W-2 forms? Form 1096 has the same relationship with your 1099 forms and should include a summary with the total amount of your 1099 payments from the last calendar year.

    When is it due?

    Form 1099 needs to be submitted along with all your 1099 forms by Jan. 31.

    Form W-4

    What is it?

    Form W-4 is used by employees to determine how much they’ll individually have withheld in payroll taxes. On this form, your employees will note how many withholding allowances apply to them. These allowances will allow you to determine the amount of payroll taxes each employee will have withheld from their paychecks.

    When is it due?

    Form W-4 doesn’t have an annual due date like other payroll forms. Instead, employees should fill a W-4 form out when they are hired. The IRS does recommend that employees submit a new W-4 form each year to account for any financial or personal changes, but it’s not mandatory. In this case, simply continue to withhold taxes based on an employee’s original Form W-4 until he or she provides a new one.

    Form 940

    What is it?

    Form 940 deals directly with Federal Unemployment Tax Act (FUTA) taxes. Your business must pay FUTA taxes if you meet the following requirements:

    • You paid at least $1,500 in wages in any calendar quarter during the past two years
    • You had one or more employees for at least some part of a day in any 20 or more different weeks during the past two years

    FUTA taxes are based on employee wages, but are only paid by the employer and not the employee, so make sure not to withhold FUTA taxes from employee wages. These taxes are paid quarterly and then reported once a year through Form 940.

    When is it due?

    Form 940 should be completed and filed to the IRS by Jan. 31. However, the IRS will extend the filing due date to Feb. 10 if you pay all your FUTA taxes on time.

    Form 941

    What is it?

    Form 941 is used to report both federal income taxes and Federal Insurance Contributions Act (FICA) taxes, the latter of which includes Medicare tax and Social Security tax. If your business’ quarterly tax liability is between less than $2,500, you can also use Form 941 to make tax deposits as well. If your liability is more than $2,500, the IRS requires that you follow a deposit schedule.

    When is it due?

    Form 941 is due quarterly, which means you should complete and report them by the following dates:

    • Jan. 31
    • April 30
    • July 31
    • Oct. 31

    Form 944

    What is it?

    Form 944 is very similar to Form 941, except that it’s used by employers who only need to file their FICA taxes once a year. The IRS grants an exemption for small employers whose annual liability for social security, Medicare, and withheld federal income taxes is $1,000 or less for the year. If your business falls within those limits, you get to file Form 944 instead of Form 941.

    When is it due?

    If you meet the requirements for Form 944, your reporting and payment deadline is Jan 31.

    Form 1095-B

    What is it?

    Form 1095-B is used by small employers to report employee health coverage if they offer a self-insured health plan. With a self-insured plan, employers pay medical bills instead of just a premium, so the IRS requires Form 1095-B to verify that individuals on your plan had minimum essential coverage. If you offer a fully-insured plan, your health insurance provider will fill out and file Form 1095-A for you.

    When is it due?

    A copy of Form 1095-B should be filed for each full-time employee covered by your plan. Individual forms should be mailed to corresponding employees by Jan. 31. The filing deadline for the IRS differs depending on how you send Form 1095-B to them. Paper forms should be mailed to the IRS by Feb. 28, but the deadline extends to March 31 if you electronically file the forms. It’s also important to keep a copy of each employee’s forms.

    Form 1094-B

    What is it?

    Like the W-3, Form 1094-B is a transmittal form used to summarize your collective 1095-B forms. This form is very simple and only requires some basic company information and a total for the number of 1095-B forms you will submit along with Form 1094-B.

    When is it due?

    The deadlines for 1094-B are the same as Form 1095-B. The only difference is that employees do not receive 1094-B.

    Place an Emphasis on Proper Payroll Management

    Payroll forms can be tricky, but they’re just one part of the payroll puzzle. Payroll administration is comprised of many different steps and responsibilities that can have major impacts on your business. To see just how much can go into the payroll process, check out our guide on what it takes to manage payroll for a small business.

    Even when you have a good understanding of each payroll form, the time and effort it takes to complete them and manage your payroll can put a serious dent in your schedule. That’s why many owners turn to GMS to handle payroll administration for their small business. Our experts take an active approach to managing your payroll so that you can spend your time growing your business instead of struggling with forms and tax calculations.

    Want to find out how GMS can save you time and money while strengthening your business’ HR functions? Contact GMS today to talk to one of our experts about your business.