Setting Up Payroll for Employees in Multiple or Different States

Setting up payroll for employees in multiple or different states can be tricky as most employers, (especially small business owners), and most people in general have likely only had experience paying payroll taxes in their home state.

Technology has made it possible for small business owners to reach across state lines, coast to coast, and beyond to find the most capable employees to fit their company vision and do 'the work.' This type of reach has expanded the wonderful possibilities of business for these companies and allowed them to find talent that may not be available to them locally, but it has also created some challenges in terms of payroll processing that can impact the business from a compliance standpoint and from an employer-employee relationship standpoint.

These types of issues can result in penalties, fines, and employee turnover - which can be costly.

The most important thing to remember is that every state is different and even some cities and local municipalities have their own taxes that may need to be deducted from the employee's pay depending on where they live, where they work, or both.

Below are some of the 'State Level Taxes' to watch out for.

State Income Tax
State Unemployment Tax
County Taxes
City Taxes
Local Taxes (School District Taxes, etc...)

These taxes may or may not apply depending on the state, city, or county the employee is employed in. Also, it is VERY important to take note of where the employee lives and where the employee works - which may be two different states (this occurs quite often in certain regions of the country) - and you will be paying different state taxes to the lived in state vs the worked in state.

The IRS and State Governments are watching you to make sure you're in compliance and your employees are counting on you to get their paycheck calculation correct.

I see a lot of small business owners in particular lean toward outsourcing in these situations. I have numerous 2 to 7 employee companies that carry employees in 2, 3, 4, or more states, and the compliance risk is often something more cost effectively managed by a payroll processing company.

If this is something impacting your small business and you have questions about what outsourcing looks like, free to reach out to me via phone or email.