Whether you're running a small agency powered by employees across various states or an employer with a fully distributed workforce operating in multiple states, you're responsible for managing the complexities of multi-state payroll.
Upwork predicts that 32.6 million Americans will work remotely by 2025, and FlexJobs found that nearly 60% of workers would look for a new job if their current company didn't let them work remotely.
With this increase in remote work and hiring talent across states, managing multi-state payroll is crucial. We're breaking down what it is, what challenges to expect, and a few best practices for navigating payroll administration across state lines.
As the name implies, multi-state payroll is the process of managing payroll for employees who work in different states. It includes complying with:
Like with general payroll tax law, you must pay employee wages, properly report taxes, and withhold the right amount of taxes for things like Social Security and Medicare.
Multi-state payroll can be complex to account for at first, but it is crucial for growing businesses to address. If done incorrectly, you could face legal issues with compliance — pay careful attention to the unique requirements of each state where your employees live and work.
Hiring and operating in multiple states comes with a handful of challenges (don't worry, our tips will help you overcome them), like labor laws, tax rates, and state unemployment insurance (SUI).
Every state has different employment laws, including minimum wage requirements, overtime laws, and employee leave policies. Plus, some municipalities have unique wage and hour laws that can further complicate payroll administration.
Staying on top of and complying with individual state laws (where your employees live and work) is a must to avoid penalties or having to painstakingly edit payroll tax errors.
You'll need to adjust payroll tax withholdings based on where your employees live. Everyone pays federal income taxes, but not every state taxes wages. Some states use a single-rate tax structure that applies to all taxable income, while others have multiple rates and brackets.
Understanding state-specific tax requirements and accurately calculating and withholding taxes is crucial for compliance and avoiding penalties.
The employer funds 100% SUI (in all but three states), and the rates vary across states. State unemployment insurance generally pays unemployment benefits to people who lost their jobs and meet eligibility requirements. But some states also collect additional payroll taxes for things like workforce development.
To ensure compliance and avoid penalties or fees, you must understand the differences in the SUI tax rates and laws in the states where your employees work.
Streamline multi-state payroll as much as possible with software, automation, and maybe even a little professional help. Here's what we suggest:
Need some help managing multi-state payroll? Start with these best practices.
Wage and hour laws differ — and change — for every state. Regularly review payroll processes and conduct audits to make sure you're compliant with individual state laws. If there are any updates to the laws, address them quickly.
Managing multi-state payroll means keeping track of your employees' records. Did an employee move to another state? Is their tax information accurate?
Keeping employee records updated, including their work location, hours worked, and more, is essential to effective multi-state payroll management and avoiding the penalties that come with non-compliance.
If you choose to keep your payroll administration in house, make sure your team has the necessary skills and stays updated on payroll regulations in all of the states in which you have employees. Continual training and paying for courses so they can grow their knowledge base is a good start. You can even incentivize employees to upskill or earn certifications that will help them be more effective.
But if you're working with a skeleton crew or your team is already overburdened, outsourcing some of the work to a payroll services partner can help lessen the burden and provide updates on regulatory changes.
Technology is one of the best ways you can help your payroll team out by automating and streamlining processes. Payroll software that connects to your other essential tools can help you become more accurate and efficient, especially when dealing with the nuances and complexities of multi-state payroll.
If you want help managing multi-state payroll, partnering with a payroll services company can help in a number of ways.
Payroll services partners like OneSource Virtual (OSV) specialize in multi-state payroll and stay in the know about the latest laws and regulations. They have the knowledge and experience to make sure you're compliant across states.
Outsourcing payroll gets rid of the need to invest in additional staff and systems. Not only does this save money, but a payroll services provider saves time by reducing how long your team works on tasks associated with managing payroll internally, like:
Payroll processing involves confidential data, making data security even more important. The right payroll outsourcing partner can help ensure data security and confidentiality with redundant backups and quality systems for storing and managing data.
For example, OSV works directly in a customer's Workday platform. By removing the need for integrations and data transfers, your data stays safe in the system you trust most.
Working with a payroll services partner gives you more flexibility as you scale. They can easily accommodate the needs of growing businesses with employees in multiple states. They'll partner with you to handle payroll administration for 100 or 10,000 employees, letting you scale without adding an extra burden.
Partnering with a payroll services company can provide peace of mind, so you can choose to focus on core operations or strategic initiatives, all while ensuring accurate and compliant multi-state payroll management.
With a trusted partner with years of experience, you can breathe a sigh of relief as they take care of everything your team doesn't have the time or skill for. That's exactly what we do at OSV.
We deliver in-tenant technology and expert services to automate the administrative, transactional tasks of payroll and payroll taxes in Workday. With over 1,000 customers and 95% customer retention, OSV is the leading exclusive provider of Business-Process-as-a-Service (BPaaS) solutions for Workday customers.
Want to hear how we can help you? Get in touch.