Multi-State Employers Payroll Issues Terry Meggitt, CPP HealthPartners Northstar Chapter APA June 16, 2011
Agenda Regulations on Paying Employees Wage and Hour Issues Income Tax Withholding Requirements State Unemployment Insurance Child Support Withholding Rules State Tax Levy Withholding Rules Garnishment Rules State Employment Verification Requirements
Regulations on Paying Employees Federal FLSA or the IRS do not regulate the following these are regulated by the States: How often and when employees should be paid How soon employees must be paid after termination How employees can be paid (cash, check, DD or paycard) What to report on the pay stub What to do with uncashed pay checks What to do with wages after an employee dies
Wage and Hour Issues Federal FLSA: minimum wage and overtime rates recordkeeping by employers child labor laws mandates equal pay for equal work Note: Federal FLSA does require you to paid wages by your payday. DOL enforces FLSA except for equal pay (EEOC) FLSA does not regulate the following: time off, lunches, breaks how often employees are paid, when to pay after termination restrict hours that employees over 16 can work
Wage and Hour Issues State FLSA: minimum wage and overtime rates White collar time off, lunches, breaks how often employees are paid, when to pay after termination restrict hours that employees over 16 can work Youth opportunity wage Tips and tip credit
Income Tax Withholding Requirements Nexus Business connection in a state If ER has nexus, ER must withhold income tax If state has a reciprocity agreement with EE s resident state and the ER has nexus with that state too, ER would not withhold for work state but would withhold for resident state If state has a reciprocity agreement with EE s resident state and the ER does not have nexus with that state, ER would not withhold for work state and would not withhold for resident state If state has no reciprocity agreement with EE s resident state, ER would withhold for the work state but may also need to withhold for the resident state
Income Tax Withholding Requirements Withholding Rule #1: Resident How many days are they in the state or are they domiciled in the state Domiciled meaning: bank accounts, driver s license, voting registration own property, family lives there Problem: 50 states about ½ use 6 months or 183 days nine state are not applicable no income tax
Income Tax Withholding Requirements Withholding Rule #2: Reciprocity Work performed in another state other than employee s residence state. do these states have a reciprocity agreement if so then only withhold for residence state and report wages only to residence state Problem: 50 states 24 states do not have any reciprocity agreements nine state are not applicable no income tax most of the other states require a form to be filled out
Income Tax Withholding Requirements Withholding Rule #3: Resident/Nonresident Taxation and no reciprocity State in which wages are earned will almost always have withholdings from nonresidents Some states have exception to the above because EE needs to meet a time test If the ER has nexus in both states the ER may need to withhold for both states and in some cases the EE s work state withhold less taxes than the resident state and the ER need to withhold the difference And then you have telecommuters, sales people, EE that cross state lines or your CEO (or anyone else in your company) go to another one of your offices for a day or longer
State Unemployment Insurance Four factors an ER can use to determine which state should be allocated for unemployment insurance Are services localized Does the EE have a base of operations Place of direction or control State of residence Interstate reciprocal coverage arrangements nearly all states participates Any state in which the EE works Any state in which the ER maintains a place of business The EE s state of residence
Child Support Withholding Rules State definition of disposable earnings for child support 40 states follow federal definition Some of the other states allow retirement contributions, union dues, medical and dental etc.. CCPA 50%, 55%, 60% and 65% What about one-time payments Priority: Federal Levy vs Child Support which one was in first When to withhold no later then 1 st pay period after 14 working days following the mailing of the notice Administrative Fees Each states sets the maximum by law.
Child Support Withholding Rules Under UIFSA, follow rules from the issuing state Duration and amount of periodic payments Person or Agency designated to receive payments Medical Support Amount of periodic payment of fees and costs (expenses) Amount of periodic payments of arrears and interest on arrears Follow rules of the primary work state when: Withhold administrative fees Deductions for calculating disposable earnings Maximum amount permitted to be withheld ER must start withhold and forward amount withheld Priorities for multiple withholding orders ER penalties
Child Support Withholding Rules Receiving more than one support order: State law governs how to handle them If received from different state then the law in the state that the EE works States handle these in one of three ways Base on a percentage: Example S1 = $600, S2 = $400 Total $1000 S1 = 60%, S2 = 40% if an EE had only $800 for disposable earnings S1 would get $480 and S2 would get $320 Allocate available earnings equally DE $800 each gets $400 First in first out, so S1 gets $600 and S2 get only $200 Montana is currently the only state using this method
State Tax Levy Withholding Rules Florida All property in Florida is exempt for failure to pay any state s income tax on benefits received from a pension or other retirement plan Idaho Levy is for 100% of the EE s wages up to the amount of the levy and is withheld once per service Iowa 100% of an EE disposable earnings Kentucky 100% of an EE disposable earnings, however exemptions for dependents may be deducted Other states could be 10%, 15%, 20%, 25% or something totally different
Garnishment Rules Federal limits 25% of disposable earnings or 30 times minimum wage Weekly $217.50 Biweekly $435.00 Semimonthly $471.25 Monthly $942.50 State limits can and do differ, also watch out for state minimum wages and if they use a different multiplier like MN uses 40 vs 30
State Employment Verification Requirements E-Verify program Which states mandate the use of E-Verify: Arizona, Colorado, Georgia (public employers and contractors), Idaho (state agencies), Minnesota (government and state contractors), Mississippi (state agencies, public contractors and subcontractors, and private employers with 30 or more employees), Missouri, Nebraska, North Carolina, Oklahoma (public employers and contractors), Rhode Island (Dept of Admin and public contractors), South Carolina, Tennessee, Utah, Virginia (state agencies)
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