Handling multi-state tax compliance

October 4, 2016 | By SBS Payroll, Inc. 0 Comments

These days, it’s not uncommon for companies to operate in multiple locations. Whether these offices are in different cities across a single state or various states across the country, businesses have even more responsibilities to take care of in these cases. One of the largest such obligations is tax compliance. Each area will have its own policies, benefits, wages, tax rates and more that organizations have to remain on top of. SBS Payroll takes a closer look at how companies and their payroll teams can do just that:

Adhere every pay period
With so many requirements to follow, it can be challenging for businesses to stay on top of the rules. To do so, executives should designate a team to managing compliance obligations to ensure every point is met. Additionally, multi-state taxation should be looked at every pay period, according to Bloomberg BNA. This way, organizations can guarantee adherence to every regulation. Keeping an eye on changing policies will help payroll leaders avoid expensive penalties tied to noncompliance, while also keeping employees happy.

“Companies must pay attention to minimum wage and FLSA requirements.”

Pay attention to minimum wage
When it comes to compensating their employees, organizations have to be aware of the wage laws mandated in each state. Companies must pay their workers the federal minimum – $7.25 – unless the rate required by the state is higher, which it is in most cases. Every jurisdiction creates its own regulations, meaning businesses operating in California and Connecticut may have to compensate their employees differently according to state law.

Additionally, new provisions under the Fair Labor Standards Act may result in more employees being eligible for overtime pay than ever before. In effect Dec. 1, 2016 employees making $913 per week or $47,476 annually will be exempt from receiving extra compensation. This is an increase to the overtime threshold, which previously stood at $455 per week, or $23,660 per year, according to the U.S. Department of Labor.

Payroll teams need to be aware of the various withholding laws according to state law.Payroll teams need to be aware of the various withholding laws according to state law.

Understand the withholding laws
If employees are working in more than one state, they don’t want to be responsible for paying double the taxes. 

To avoid multi-state withholding, the Society for Human Resource Management suggested using one of the following methods:

  • The resident state does not withhold taxes on wages earned while working in another state.
  • The resident state withholds taxes if the other state’s withholding is lower than the resident state’s withholding.
  • The resident states withholds taxes if the other state imposes no income taxes.
  • The state where the employee works may require that income tax be allocated to determine if an employer’s state withholding tax liability.
  • Some states have reciprocity agreements not to withhold income taxes on employees from a resident state working in the other state. 
  • Some states do not tax the nonresident until he or she has worked a certain amount of time or earned a certain amount of wages in that state.

To ensure they’re not taking too much out of employees’ wages, it’s critical for payroll teams to understand the regulations of the state their business is operating within. Certain concessions may be able to be made if laws, like reciprocity agreements, are in place.

Implement HCM software
It can be difficult for organizations to handle multi-state and multi-country tax compliance on their own, especially with the likelihood of regulations changing over time. As a result, businesses can implement human capital management to assist. The solution can manage a number of human resources and payroll factors on a day-to-day or pay period basis, allowing companies to send important messages across the company, across the country. Furthermore, the system can maintain data as it specifies to each individual location or franchise to ensure workers are being compensated accurately and appropriately. 

SBS Payroll’s HCM software can accomplish all of those tasks and more. To learn how, read SBS’ latest whitepaper: Top 5 Reasons HCM Software Leads to Workplace Efficiency



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