2024 Guide to Multi-State Payroll Compliance

The National Labor Relations Board (NLRB) uses “common-law factors” to determine whether a worker is an independent contractor or an employee. These factors help clarify the worker’s classification based on the degree of control and independence.

Key Common-Law Factors:

1. Control Over Work: The degree to which the employer controls how the work is performed.
2. Opportunity for Profit or Loss: The worker’s opportunity for profit or loss based on their managerial skill.
3. Investment in Equipment: The extent of the worker’s investment in equipment or materials required for their task.
4. Skill Required: The degree of skill and independent initiative required to perform the work.
5. Permanence of Relationship: The duration and permanence of the working relationship.
6. Integral Part of Business: Whether the work performed is an integral part of the employer’s business.

New-hire reporting is a requirement aimed at aiding the enforcement of child support orders and detecting fraud. Employers must report information about newly hired and rehired employees to the state within specific timeframes.

Key Points to Consider:

• Reporting Requirements: Employers must report each new hire’s name, address, Social Security number, and date of hire. Some states may also require additional information, such as the employee’s date of birth or employer’s Federal Employer Identification Number (FEIN).
• Timeframes: The reporting timeframe varies by state but is typically within 20 days of the hire date. For example, California requires new hires to be reported within 20 days, while Texas mandates reporting within 20 calendar days of the hire date.
• Methods of Reporting: States offer various methods for reporting new hires, including online submission, mail, fax, and electronic file transfer. Employers should choose the method that best suits their needs and ensures timely reporting.
• Importance of Compliance: Timely and accurate new-hire reporting helps states in locating parents who owe child support, identifying individuals who have committed unemployment insurance fraud, and reducing improper benefit payments. Non-compliance can result in penalties and fines.

Complying with notice and recordkeeping requirements is crucial to avoid penalties and ensure employees are informed about their rights and responsibilities under the FMLA and state leave laws.

Key Points to Consider:

• Employee Notice: Employees must provide their employers with at least 30 days’ notice when the need for leave is foreseeable, such as for planned medical treatments or the birth of a child. If the need for leave is unforeseeable, employees must notify their employers as soon as practicable.
• Employer Notice: Employers are required to provide employees with several notices, including:
  • General Notice: Employers must display a general notice about FMLA rights and obligations in a conspicuous place and include information in employee handbooks or other written guidance about employee benefits.
  • Eligibility Notice: When an employee requests FMLA leave or when the employer acquires knowledge that leave may be for an FMLA-qualifying reason, the employer must inform the employee of their eligibility for FMLA leave within five business days.
  • Rights and Responsibilities Notice: This notice must detail the specific expectations and obligations of the employee and explain the consequences of failing to meet these obligations.
  • Designation Notice: Once the employer has enough information to determine whether the leave is for an FMLA-qualifying reason, the employer must inform the employee within five business days whether the leave will be designated as FMLA leave.
• Recordkeeping: Employers must maintain records related to FMLA leave, including:
  • Basic payroll and employee data
  • Dates and hours of FMLA leave taken
  • Notices provided to employees and records of any disputes regarding FMLA leave
  • Records of employee benefits and compensation
  • Records of disputes regarding FMLA designation
  • Employers are required to keep these records for at least three years and make them available for inspection by the Department of Labor upon request.

To ensure compliance with family and medical leave laws, employers should:

• Develop Comprehensive Leave Policies: Establish clear policies that outline employee rights and responsibilities under the FMLA and state leave laws. Ensure these policies are communicated to all employees and included in employee handbooks.
• Utilize Leave Management Software: Invest in leave management software that can handle multi-state compliance, automate notice requirements, and track leave usage accurately.
• Provide Regular Training: Train HR and management staff on FMLA and state-specific leave laws to ensure they understand the requirements and can effectively manage leave requests.
• Stay Informed: Keep up-to-date with changes in federal and state leave laws by subscribing to updates from relevant government agencies and consulting with legal experts.
• Conduct Periodic Audits: Regularly audit leave records and practices to ensure compliance with notice, recordkeeping, and eligibility requirements. Address any discrepancies promptly.
• Communicate Clearly with Employees: Ensure employees are informed about their rights and responsibilities regarding family and medical leave. Provide clear instructions on how to request leave and what documentation is required.

To ensure compliance with unemployment tax and benefit requirements, employers should adopt the following strategies:

• Stay Informed: Keep up-to-date with federal and state unemployment tax rates, wage bases, and reporting requirements. Subscribe to updates from relevant government agencies and consult with payroll professionals.
• Accurate Recordkeeping: Maintain accurate payroll records, including employee earnings, hours worked, and employment status. These records are essential for calculating and paying unemployment taxes and for responding to unemployment claims.
• Timely Payments: Ensure timely payment of FUTA and SUTA taxes to avoid penalties and interest charges. Use electronic payment systems to streamline the payment process.
• Experience Rating Management: Monitor and manage your experience rating by addressing the causes of high turnover and implementing strategies to reduce unemployment claims, such as providing training and support for employees.
• Employee Communication: Inform employees about their rights and responsibilities regarding unemployment benefits. Provide clear instructions on how to file claims and what to expect during the process.
• Audit Preparedness: Be prepared for state or federal audits by maintaining organized and accessible records. Conduct periodic internal audits to ensure compliance with all unemployment tax and benefit requirements.

Regular audits of payroll processes are essential to identify and correct compliance issues. Audits help ensure that all payroll practices align with federal, state, and local regulations.

Key Points to Consider:

• Internal Audits: Conduct internal audits at least annually to review payroll processes, tax withholdings, employee classifications, and benefits administration. Use a checklist to ensure all aspects of payroll are covered.
• External Audits: Periodically engage external auditors to provide an objective assessment of your payroll practices. External audits can help identify issues that may be overlooked internally.
• Documentation: Maintain thorough documentation of all payroll processes, including audit results and corrective actions taken. This documentation can be invaluable in case of an external audit by government agencies.
• Corrective Actions: Develop a process for addressing issues identified during audits. This may include retraining staff, updating payroll software, or revising internal policies and procedures.

Using reliable payroll software is crucial for managing the complexities of payroll compliance, especially for businesses operating in multiple states.

Key Points to Consider:

• Multi-State Compliance: Choose payroll software that supports multi-state payroll processing, including automatic updates for state-specific tax rates, wage bases, and filing requirements.
• Automation: Automate as many payroll processes as possible, including tax calculations, withholdings, and electronic filings. Automation reduces the risk of human error and ensures timely compliance with regulatory requirements.
• Integration: Ensure the payroll software integrates seamlessly with other HR systems, such as time and attendance tracking, benefits administration, and employee self-service portals. Integration enhances data accuracy and streamlines payroll management.
• User-Friendly: Select software that is user-friendly and provides robust support, including training resources and customer service. This ensures that payroll staff can effectively use the software and resolve issues quickly.