Nowadays, businesses have been forced to evolve in order to become less decentralized and a lot more flexible, especially in light of the way in which the entire world is more connected now than ever before.
With workforces no longer restricted by the physical boundaries of an office, more and more employers are taking on employees from different states, which can be great for a business, but which also brings a unique and challenging set of rules for payroll administrators.
If you’re running payroll for out-of-state employees, or are considering doing so, here are 6 common payroll challenges you’re likely to face:
- Variations in state and local taxes
With every U.S. state having its own set of tax laws that are quite distinctive and unique, variations in such things as withholding requirements and income tax rates, can prove difficult to calculate. It can also prove problematic in terms of being able to accurately withhold both state and local taxes for employees working outside of the state your business is registered in. If a business is operating in more than just one or two states, these variations in taxes can multiply and become even more complex.
By employing a tax professional, however, businesses can keep themselves up-to-date with all changes to tax laws and regulations that might affect them, and better manage the payroll challenges and complexities they are likely to face.
- Business registration
If you hire employees in a state in which your company has no physical presence, you may create a legal term known as a ‘nexus.’ If established, nexus could mean that as a business, you would be obliged to register in that same state, which could prove extremely problematic in terms of extra compliance requirements and further administrative burdens.
To help you avoid potential and costly penalties, it’s best to consult with a legal professional or company specializing in payroll and tax laws, who can guide you better.
- Deductions and benefits
Involving so much more than simply ensuring your employees get their wages on time, managing payroll is also about accurately administering various deductions and benefits. And with each state having different rules surrounding this, navigating these rules can be time consuming and complex without the help of a payroll management provider.
- Wage and hour laws
With each state having differing wage and hour laws, encompassing such things as break periods, regulations regarding overtime, and rules surrounding minimum wages, getting to grips with them doesn’t just affect the bureaucratic element of running a business, but can have a significant impact on the morale and productivity of employees, too. Hence it’s important to get all of these factors right when running payroll, and ideally, with the help of software and an outsourced payroll management firm.
- Reporting and filing in multiple states
With each state having specific requirements as to the filing and reporting of payroll taxes, without software or expert help to navigate these notoriously tricky waters, employers could face an increase to their workload, or penalties for inaccurate filing or missed deadlines.
- Remote work policies
With remote working becoming the norm nowadays, each company dealing with employees from multiple states, must establish policies and guidelines that contain clear instructions as to the tracking of hours worked, eligibility for overtime and reimbursements for expenses related to the business.
A comprehensive policy that takes into account all relevant payroll considerations for remote working is essential, and a payroll management firm can help you establish this.
While it may appear as if the complexities of managing payroll for out-of-state employees are too much to make it worthwhile, with the right professional guidance and support, it can prove beneficial for both employer and employee.