Payroll compliance can be complicated when employees are scattered across multiple states. Each state has minimum wage laws, unemployment taxes and disability insurance costs. An employee’s employment in any occupation at an oppressive and unreasonable wage is declared to be contrary to public policy. The Commissioner of Labor and Workforce Development shall establish minimum fair wages through a wage board appointed as provided in this act.
State Minimum Wage Laws
Employers are required by federal and state laws to pay their staff at least the minimum wage. States have different laws, and some have particular regulations that apply to workers who receive tips. Because of this, minimum wage regulations may be difficult for employers to understand. Payroll software like those offered by ADP plays a pivotal role in ensuring compliance with minimum wage regulations by automatically calculating and applying the required pay rates mandated by federal and state laws. Lowering the possibility of payroll errors and giving employers a dependable tool to uphold wage standards encourages legal and financial stability in their business operations.
Most states follow the federal minimum wage, but some have standards higher than the federal requirement. These state laws ensure employees are paid at least the minimum wage for all work hours.
In addition, tipped workers must be paid at least the minimum wage when tips are combined with cash wages. In some states, special rules apply to certain workers, such as student learners enrolled in vocational education programs, youth under 20 in their first 90 days of employment, and people with physical or mental disabilities that impair their ability to earn or be productive.
While the goals of state minimum wage and EITC policies are complementary, they serve different groups of working families. Increasing the minimum wage and expanding EITCs can help reach a more low-wage workforce than either policy alone. This is why improving both policies is important for promoting family economic security. In New Mexico, the recent increase in minimum wage and EITC has reached an additional 250,000 working families.
State Income Taxes
State income taxes account for a significant portion of state revenue and are one of the most important data sources on how tax systems interact with people.
Forty-one states and the District of Columbia levy broad-based individual income taxes on wage and salary income, while New Hampshire and Tennessee levy only dividend and interest income. Local governments in 13 states levy an earnings or payroll tax separate from (and often in addition to) state income taxes. These local and state income taxes provide more than 40 percent of state government general revenue.
In many states, employers must withhold income tax from wages if the worker has a “nexus” in the state, which can be determined by having a physical presence in the state, such as a store, office, or factory, or by working remotely. In addition, some states may allow an employee to claim a deduction for state income tax paid even though the employer did not withhold the tax from pay.
State income tax rules vary widely and are complex. Some states have progressive tax rates and brackets, while others use a flat rate for all taxpayers or don’t impose an income tax. How and when state income taxes are filed can also differ by jurisdiction. For example, some states require that a copy of the federal return be attached to the state return.
State Unemployment Taxes
State unemployment taxes (SUTA) are required payroll taxes that support each state’s unemployment insurance program. Unlike the Federal Unemployment Tax Act (FUTA) tax, states do not deduct SUTA taxes from employees’ paychecks. Instead, employers pay SUTA taxes directly to their state’s labor department.
Each state sets its own SUTA tax rate range, taxable wage base, and experience rating system, so it’s important to consult your specific state unemployment tax laws for more information.
Once an employer meets the eligibility requirements, it receives a mailed “Tax Rate Determination” in December that assigns the upcoming year’s SUTA tax rate components and taxable wage base. This is based on the employer’s actual SUTA experiences during the previous year, calculated by the corresponding UI claims paid and SUTA contributions made.
The SUTA tax rate component and taxable wage base for new employers differ from established employers, as does the FUTA tax rate. Generally, the FUTA rate is higher than the SUTA tax.
It’s also important to note that FUTA and SUTA differ from FICA, a separate payroll tax paid by employees and employers for Social Security and Medicare benefits. While the FUTA tax is applied to wages, the FICA tax rate is only 6.2 percent on taxable compensation up to a set annual limit. The FUTA tax credit is reduced in states that have yet to repay borrowing advances from the federal government.
State Disability Insurance Laws
Five states (California, New Jersey, Rhode Island, California and Puerto Rico) have State Disability Insurance programs that partially replace workers’ wages when they are too ill or injured to work. To be eligible for the program, an individual must have been unable to perform their regular or customary work and be under a doctor’s care for a specified period. The benefits are funded in part by workers, but employers must also contribute.
All fifty states and the District of Columbia have laws that govern minimum wage, overtime, sick leave, family and medical leave, and other workplace issues. While Congress has established a few federal minimum wage and overtime requirements exemptions, most states have rules regarding these issues.
Generally, these regulations are enforced by the state’s labor department or its equivalent. The labor departments’ agencies have the authority to investigate alleged violations, compel the attendance of witnesses and require the production of records. They can also sue to restrain violations, recover unpaid wages and liquidated damages for employees, and impose civil fines. In addition, the FLSA provides employees with a private right of action to recover unpaid minimum wages. Employees may recover damages for themselves and “similarly situated” employees.