Payroll, Wage & Hour Compliance FAQs

How do I figure out which state to withhold payroll taxes for when an employee works remotely from a different state?

You generally withhold payroll taxes in the state where the employee physically performs the work, not where your company is headquartered. If an employee lives and works remotely in Texas but your office is in New York, you withhold based on Texas rules (which has no state income tax). However, some states have reciprocal agreements or convenience-of-the-employer rules - New York, for example, may still tax remote workers if the remote arrangement is for the employee's convenience rather than business necessity. You also need to register for state unemployment and withholding accounts in every state where employees work. Our Multi-State Payroll Tax Compliance Webinar walks through nexus triggers and reciprocal agreements state by state.

What's the difference between an exempt and a non-exempt employee for payroll purposes?

Exempt employees are salaried workers who meet the FLSA duties test and earn at least $1,128 per week ($58,656 annually as of 2025) and are not entitled to overtime pay. Non-exempt employees must be paid at least minimum wage for all hours worked and receive overtime at 1.5x their regular rate for hours exceeding 40 in a workweek. Misclassifying a non-exempt employee as exempt exposes you to back-pay liability, liquidated damages, and potential DOL penalties. Build your classification confidence through the Certified Payroll Manager program, which covers FLSA exemption analysis in depth.

An employee just quit without notice - how fast do I have to give them their final paycheck?

Final paycheck deadlines are set by state law and vary significantly - California requires payment within 72 hours of a resignation (or immediately if the employee gave at least 72 hours' notice), while states like Texas allow up to the next regular payday. For involuntary terminations, some states like California and Colorado require same-day payment. There is no single federal deadline; the FLSA only requires payment by the next regular payday. Always check your specific state's final pay statute, and learn multi-state final pay rules in our Multi-State Payroll Tax Compliance Webinar.

How do I calculate overtime for an employee who gets a shift differential and a bonus?

Overtime must be calculated on the employee's regular rate of pay, which includes shift differentials, non-discretionary bonuses, and commissions - not just the base hourly rate. To compute it, add the total straight-time pay plus the shift differential and any non-discretionary bonus earned during the workweek, divide by total hours worked to get the regular rate, then pay an additional 0.5x that rate for each overtime hour. For example, if an employee earns $600 base + $50 shift differential for 45 hours, the regular rate is $650 / 45 = $14.44, and overtime premium is $14.44 x 0.5 x 5 = $36.11. Master these calculations in the Certified Payroll Administrator program.

When are federal payroll tax deposits due - what's the difference between monthly and semi-weekly schedules?

Your deposit schedule is determined by your total tax liability reported during a four-quarter lookback period: if you reported $50,000 or less, you're a monthly depositor and must deposit by the 15th of the following month. If you reported more than $50,000, you're a semi-weekly depositor - taxes on Wednesday through Friday paydays are due by the following Wednesday, and taxes on Saturday through Tuesday paydays are due by the following Friday. Any accumulation of $100,000 or more on any day triggers a next-business-day deposit regardless of schedule (per IRS Publication 15). The Online Payroll Certification programs cover deposit rules and penalty avoidance in detail.

How do I know if a worker should be classified as a W-2 employee or a 1099 independent contractor?

The IRS uses a three-factor test - behavioral control, financial control, and type of relationship - to determine classification. If you control how, when, and where the worker performs their duties, provide tools/equipment, and the relationship is ongoing with benefits, that worker is likely a W-2 employee. Independent contractors set their own schedules, use their own equipment, and have the ability to profit or lose from their work. Misclassification can trigger back employment taxes, penalties of 1.5% to 3% of wages, and potential DOL enforcement action under the 2024 final rule. Strengthen your classification skills through the Certified Payroll Manager program.

We just hired someone in a new state where we have no presence - what payroll registrations do I need?

At minimum, you need to register for a state withholding tax account and a state unemployment insurance (SUI) account in that state. Many states also require registration with the Secretary of State, a workers' compensation policy covering that state, and compliance with the state's new hire reporting program. Some states like California, New York, and New Jersey also have state disability insurance (SDI) or paid family leave (PFL) programs that require additional registration and withholding. Our Multi-State Payroll Tax Compliance Webinar provides a checklist of registration requirements for all 50 states.

What are the rules for processing a wage garnishment - can I charge the employee for the administrative cost?

Under Title III of the Consumer Credit Protection Act (CCPA), you must comply with a garnishment order and cannot terminate an employee for a single garnishment. Maximum withholding is generally 25% of disposable earnings for ordinary creditor garnishments and up to 50%-65% for child support depending on arrears status. Whether you can charge the employee an administrative fee depends on state law - some states like Indiana and Ohio allow a small per-deduction fee (e.g., $3-$12 per pay period), while others prohibit it entirely. Priority of garnishments also follows a legal hierarchy, with child support typically taking precedence. Learn garnishment processing and compliance in the Certified Payroll Administrator program.

How long do I need to keep payroll records?

The FLSA requires payroll records to be retained for at least 3 years, and supplemental records like time cards, wage rate tables, and work schedules must be kept for at least 2 years. The IRS requires tax records (Forms W-4, 941, W-2 copies) to be kept for at least 4 years after the tax due date or payment date, whichever is later. State requirements often extend further - California and New York require certain records be kept for 6 years. The safest practice is to retain all payroll records for a minimum of 7 years to cover overlapping federal and state requirements. Get a complete retention schedule in our Online Payroll Certification training.

Do I have to pay employees for travel time between job sites during the workday?

Yes - under the FLSA, travel time between job sites during the workday is compensable work time. This is distinct from normal commuting to and from the employee's home, which is generally not compensable under the Portal-to-Portal Act. If an employee travels from Site A to Site B during their shift, all that travel time counts toward hours worked and must be included in overtime calculations. Special rules apply for overnight travel and travel on non-working days, where only the time that corresponds to regular working hours is typically compensable. The Certified Payroll Manager program covers all FLSA compensable time rules.

How do I handle supplemental wages like bonuses and commissions for tax withholding?

The IRS allows two methods for withholding federal income tax on supplemental wages: the flat rate method (22% for supplemental wages under $1 million, 37% for amounts exceeding $1 million in a calendar year) or the aggregate method, which combines the supplemental payment with the most recent regular paycheck and withholds based on the combined total using the employee's W-4. The flat rate method is simpler and most commonly used for standalone bonus checks. State supplemental withholding rates vary - California uses 10.23% and New York uses 11.70%. Review supplemental wage taxation strategies in our Online Payroll Certification programs.

What's the federal minimum wage in 2026 and how do I handle states and cities with higher rates?

The federal minimum wage remains $7.25 per hour (unchanged since 2009), but you must always pay the highest applicable rate - federal, state, or local. As of 2026, over 30 states and dozens of cities have minimums above the federal rate, with some like Washington and California exceeding $16 per hour. If you have employees in multiple jurisdictions, each employee's pay rate must meet or exceed the rate for the location where they physically work. Track changing rates and compliance obligations through the Certified Payroll Administrator program, which covers multi-jurisdictional wage and hour law.

We have tipped employees - what are the payroll rules for tip credits and minimum wage?

Under the FLSA, employers may take a tip credit of up to $5.12 per hour, paying a direct cash wage as low as $2.13 per hour, as long as the employee's tips bring total compensation to at least the federal minimum wage of $7.25 per hour for each workweek. You must inform employees of the tip credit provision before using it, and you cannot require employees to share tips with non-tipped employees like managers (per the 2024 DOL final rule updates). Several states including California, Oregon, and Washington do not allow a tip credit at all - you must pay the full state minimum wage before tips. Learn tip credit calculations and compliance across states in the Certified Payroll Manager program.

What is new hire reporting and when does it have to be done?

New hire reporting is a federal requirement under the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) that requires employers to report every newly hired or rehired employee to their state's designated agency, typically within 20 days of the hire date. Some states have shorter deadlines - for example, California, Connecticut, and Ohio require reporting within 20 days, while others like Pennsylvania allow 20 days as well but vary on specifics. You must report the employee's name, SSN, address, and your employer identification number (EIN) and address. Multi-state employers can elect to report all new hires to a single state if they register with the federal Office of Child Support Enforcement. Our Online Payroll Certification training covers new hire reporting procedures for all states.

Can I dock a salaried exempt employee's pay if they miss a partial day of work?

No - under the FLSA salary basis rules (29 CFR §541.602), you cannot reduce a salaried exempt employee's pay for partial-day absences. If the employee works any part of the day, they must receive their full daily salary. You may only dock an exempt employee's salary in very limited circumstances: full-day absences for personal reasons, full-day absences for sickness/disability under a bona fide plan, FMLA leave, unpaid disciplinary suspensions of one or more full days for serious safety violations or workplace conduct rules, or the first and last weeks of employment. Improper deductions can destroy the exemption and trigger overtime liability for the entire class of employees. Understand salary basis requirements through the Certified Payroll Administrator program.

How do I handle payroll for an employee who works in multiple states during the same pay period?

You must allocate wages and withhold state income tax based on each state's apportionment rules, which are typically determined by days worked or wages earned in each state. For example, if an employee earning $5,000 biweekly works 6 days in Illinois and 4 days in Indiana during a pay period, you allocate 60% of wages to Illinois and 40% to Indiana for withholding purposes. Some states use reciprocal agreements that simplify this - Illinois and Indiana have one, so the employee would only owe tax to their resident state. You'll also need SUI accounts in each state and must apply the correct taxable wage base for each. Our Multi-State Payroll Tax Compliance Webinar breaks down allocation methods and reciprocity agreements.

What happens if I miss a payroll tax deposit deadline - what are the penalties?

The IRS imposes escalating penalties for late payroll tax deposits under IRC §6656: 2% for deposits 1-5 days late, 5% for 6-15 days late, 10% for more than 15 days late, and 15% if the tax is not deposited within 10 days of the first IRS notice or is paid by check after being required to use EFTPS. These penalties apply to the amount of the underpayment, not the total deposit. Additionally, the Trust Fund Recovery Penalty (IRC §6672) can hold responsible individuals - including payroll managers, CFOs, and business owners - personally liable for the employee portion of unpaid payroll taxes. Avoid costly mistakes with proper training through the Online Payroll Certification programs.

We're paying an employee overseas - what do I need to know about international payroll?

Paying an employee in a foreign country requires compliance with that country's labor laws on minimum wage, statutory benefits, termination protections, and tax withholding - U.S. employment law generally does not apply abroad. You have three main options: establish a legal entity in the country, use an Employer of Record (EOR) service that acts as the legal employer on your behalf, or classify the worker as an independent contractor (which carries significant misclassification risk internationally). For U.S. tax purposes, you generally do not withhold U.S. income tax or FICA for a foreign national working entirely outside the U.S., but you may have reporting obligations. Explore international payroll fundamentals and global compliance in our HR Webinars series.

Do I have to pay non-exempt employees for time they spend in mandatory training?

Yes - under the FLSA, time spent in employer-required training is compensable hours worked and must be counted toward overtime calculations. Training is only non-compensable if it meets all four criteria: attendance is outside regular working hours, attendance is voluntary, the training is not directly related to the employee's job, and the employee does not perform productive work during the session. If any one of those conditions is not met, the time must be paid. This includes onboarding training, safety courses, and compliance sessions. Learn compensable time rules and audit your practices through the Certified Payroll Manager program.

What factors should I consider when setting pay rates for different positions?

Compensation should be based on a structured analysis of job duties, market data, internal equity, geographic cost of labor, required skills and certifications, and legal minimums. Start with a formal job evaluation, then benchmark against salary surveys for your industry and region. You must also ensure compliance with equal pay laws - the federal Equal Pay Act and state pay equity statutes like those in Colorado, California, and New York that may require pay transparency in job postings. Avoid ad hoc pay decisions that create unexplained disparities across protected classes. Read our detailed guide on factors affecting compensation and strengthen your payroll strategy through the Certified Payroll Manager program.

How do I determine if my remote employees create a payroll tax nexus in their state?

A single employee working remotely in a state typically creates payroll tax nexus in that state, requiring you to register for state income tax withholding and unemployment insurance. Most states consider the physical location where work is performed as the trigger - even one employee working from home in a new state can obligate you to withhold and remit. Some states also have economic nexus thresholds for corporate income tax, and having employees in-state almost always meets these thresholds. Be aware that states like New York, Connecticut, and New Jersey have unique telecommuter rules that can result in double taxation without proper planning. Our Multi-State Payroll Tax Compliance Webinar covers nexus analysis for every remote work scenario.

What's the correct way to pay an employee who works unauthorized overtime?

You must pay for all unauthorized overtime - the FLSA requires compensation for all hours worked, even if the overtime was not pre-approved. Under 29 CFR §785.11, work not requested but "suffered or permitted" is still compensable at 1.5x the regular rate. You can discipline the employee for violating your overtime policy (up to and including termination), but you cannot withhold the overtime pay. Failing to pay is a wage and hour violation regardless of your written policy. Build compliant overtime policies and enforcement strategies through the Certified Payroll Administrator program.

How do I handle payroll when an employee moves to a different state mid-year?

When an employee relocates mid-year, you must stop withholding for the former state and begin withholding for the new state as of the date they start working in the new location. For SUI, you continue paying to the original state through the end of the calendar quarter in most cases, then switch to the new state. The employee will likely need to file part-year resident returns in both states, and some states may require you to issue separate or annotated W-2s showing wages allocated to each state (using boxes 15-17). Register with the new state's tax and unemployment agencies before the first payroll run. Get step-by-step relocation procedures in the Multi-State Payroll Tax Compliance Webinar.

What are the FLSA rules on meal and rest breaks - do I have to pay for them?

The FLSA does not require employers to provide meal or rest breaks, but if you do, breaks of 20 minutes or less must be paid as hours worked under 29 CFR §785.18. Bona fide meal periods of 30 minutes or more are not compensable, provided the employee is completely relieved of duties - if they eat at their desk while monitoring phones, that time must be paid. Many states impose their own break requirements: California mandates a 30-minute unpaid meal break before the 5th hour and paid 10-minute rest breaks every 4 hours, with one additional hour of pay as a penalty for each missed break. Review federal and state break compliance in the Certified Payroll Manager program.

Can I receive a child support garnishment and a creditor garnishment at the same time for one employee - which one takes priority?

Child support garnishments always take priority over ordinary creditor garnishments. Under the CCPA, child support can consume up to 50% of disposable earnings (60% if the employee isn't supporting a second family, plus an additional 5% for arrears over 12 weeks). Only after the child support obligation is satisfied do you apply creditor garnishments, and the total across all non-child-support garnishments cannot exceed 25% of disposable earnings. Federal tax levies from the IRS have their own priority rules and may run concurrently. If multiple garnishments exceed the maximum, you must follow your state's priority statutes and notify the issuing agencies. Process garnishments confidently with training from the Certified Payroll Administrator program.

What payroll forms do I need to file annually and what are the deadlines?

Key annual payroll filings include: Form W-2 (to employees and SSA by January 31), Form W-3 (transmittal of W-2s, also due January 31), Form 940 (annual federal unemployment tax, due January 31), and Form 1099-NEC for independent contractors (due January 31 to recipients and the IRS). Quarterly filings include Form 941 (due the last day of the month following each quarter end - April 30, July 31, October 31, January 31). State unemployment and withholding returns have their own quarterly deadlines that vary by state. Missing these deadlines triggers automatic penalties starting at $60 per form for W-2s filed late. Master the full payroll filing calendar in our Online Payroll Certification training.

A salaried employee just told me they should actually be classified as non-exempt - how do I fix this and limit our liability?

Act immediately: conduct a formal job duties analysis against the FLSA exemption tests (executive, administrative, professional, computer, or outside sales) and document your findings. If the employee is indeed misclassified, reclassify them going forward, begin tracking hours, and pay overtime prospectively. For back pay exposure, the FLSA statute of limitations is 2 years for non-willful violations and 3 years for willful violations, so assess potential liability for that period. Consider a DOL self-audit or voluntary compliance approach, which may reduce liquidated damages. Do not wait - continuing to misclassify after becoming aware is considered willful. Get ahead of classification risks with the Certified Payroll Manager program and review our insights on factors affecting compensation.

Do I need to include fringe benefits like company car use or gym memberships in taxable payroll?

Yes - most fringe benefits are taxable income unless the IRS specifically excludes them. Personal use of a company vehicle must be reported as taxable income using one of three IRS valuation methods: the annual lease value table, the cents-per-mile rule ($0.70/mile for 2025), or the commuting rule ($1.50 each way). Gym memberships paid by the employer are fully taxable. Common exclusions include health insurance premiums, HSA contributions up to annual limits, de minimis benefits (occasional coffee, snacks), and qualified transportation benefits up to $325/month for 2025. All taxable fringe benefits must be included in the employee's W-2 wages and are subject to federal income tax, Social Security, and Medicare. Learn fringe benefit taxation rules in our Online Payroll Certification programs.

What's the difference between a payroll tax and an employment tax - or are they the same thing?

They are often used interchangeably, but technically employment taxes is the broader IRS term encompassing all taxes arising from the employer-employee relationship: federal income tax withholding, Social Security tax (6.2% each for employer and employee on wages up to $176,100 in 2025), Medicare tax (1.45% each, plus 0.9% Additional Medicare Tax on employee wages over $200,000), and federal unemployment tax (FUTA at 6.0% on the first $7,000, with credits reducing the effective rate to 0.6%). Payroll taxes more narrowly refers to the Social Security and Medicare (FICA) and unemployment portions. Understanding these distinctions is essential for accurate reporting and deposits. Build a strong tax foundation through the Certified Payroll Administrator program.

How should I handle paying employees who work on company-observed holidays - is holiday premium pay required?

The FLSA does not require premium pay or extra pay for work on holidays - there is no federal mandate for holiday pay, time-and-a-half on holidays, or paid holidays off. Holiday premium pay (such as double-time or time-and-a-half) is entirely determined by your company policy, employment contract, or collective bargaining agreement. However, if a non-exempt employee works on a holiday and it pushes their weekly total over 40 hours, you must pay overtime at 1.5x the regular rate for those excess hours. Some states and municipalities have specific holiday pay requirements - Massachusetts and Rhode Island still have limited Sunday/holiday premium pay laws for certain retail workers. Review wage and hour best practices, including holiday pay policy design, in our HR Webinars series.

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