Payroll taxes can be complicated, especially since they’re subject to change due to local, state and federal regulations. It’s crucial for human resources teams to stay on top of these requirements, as failing to do so could result in serious consequences for employers. Today, multi-state tax compliance is one of the most difficult responsibilities businesses face, according to Bloomberg. Adherence to these rules is necessary to ensure organizations compensate and tax themselves and their employees accurately and appropriately. Let’s take a look at some information payroll leaders should understand regarding multi-state taxes to remain compliant:
Common ownership and the Affordable Care Act
The year 2016 is a big one for the ACA, as it marks the complete implementation of several important federal guidelines. Although a change was proposed at an earlier time, the definitions of small and large employer are now permanent. The former covers companies with less than 50 workers, while the latter defines businesses with 50 or more employees. This is critical for organizations to understand when completing their ACA requirements.
There is another situation, however, that is worth mentioning, too. Common ownership refers to controlled groups, or businesses that have more than one location or franchise. In these cases, companies may consider each individual franchise its own free-standing organization, allowing them to remain a small employer and not be obligated to provide health insurance for employees. This is not accurate, however. If one company owns and controls all locations, then the business must count the number of workers at all franchises to determine their eligibility status, according to IRS standards. If the amount of employees across locations adds up to more than 50, then organizations are required to provide coverage.
As an employer, it’s been difficult to ignore all of the news regarding a call for increasing the minimum wage for workers. This subject is a controversial one, and considering the upcoming election, will continue to be throughout the year. States across the country are changing their minimum wage as a result, which can be confusing for companies operating in more than one location.
Businesses are required to pay employees the federal minimum wage – which is currently set at $7.25 – unless their state’s figure is higher. This can be confusing for multi-state employers, since one location may be required to pay their workers more than another, even if it’s just across state lines. Payroll teams must remain updated on any alterations to their state laws to ensure employees receive the right compensation to avoid pay-related legal trouble.
“Each state has its own income tax withholding regulations companies must follow.”
Income tax withholding can be overwhelming enough for payroll teams when their employees work and live in the same state. What about those workers who are residents of one state and work in another? This is where the income tax withholding process becomes even more difficult. Businesses can usually follow the rule that states taxes should be withheld for the state in which the services are performed when workers live and work in the same place. Unfortunately, every location is different and has their own set of standards for this task.
Payroll teams need to understand their state’s regulations regarding income tax withholding. Each will have its own definition of a resident. In addition, some states have reciprocal agreements, which allow organizations to withhold only for the state of residence, instead of the state of operations, according to CCH. Those states without these arrangements require companies to consider the laws of both states.
Leaves of absence
While the federal government requires employers to follow the Family and Medical Leave Act, each state has its own leave laws. Businesses are not obligated to provide paid absences under the FMLA, but certain states do have these regulations in place, including California and New Jersey, the Society for Human Resource Management reported.
Payroll tax teams must educate their workers on the rules that apply to their employment. Being upfront with employees will foster a sense of trust between company leaders and their constituents and help organizations avoid legal issues in the future.
Multi-state tax compliance can be confusing and stressful for human resources directors in charge of payroll. Local, state and federal regulations are always changing, requiring business leaders to constantly be on their toes. Sometimes, this obligation can be too much for companies to keep track of on top of all their other duties. In these cases, organizations and their payroll teams can partner with tax professionals to complete this important task. These service providers can remain current on tax standards and ensure compensation and withholding is completed accurately and in a timely manner, making the procedure more effective and efficient.