Payroll taxes can be complicated, especially since they’re subject to change due to local, state and federal regulations. It’s crucial for HR teams to stay on top of these requirements, as failing to do so could result in serious consequences for employers.

Below is a look at some information you should understand regarding multistate payroll taxes to remain compliant in every state you operate in.

Should this feel overwhelming, or if it’s causing entrepreneur’s insomnia, just remember that Payroll Tax Management offers both payroll tax software and services to make this as easy for you as possible.

Common Ownership & Affordable Care Act

The definitions of small and large employer are now permanent. The former covers companies with less than 50 workers, while the latter defines businesses with 50 or more employees. This is critical for organizations to understand when completing their ACA requirements.

There is another situation, however, that is worth mentioning, too. Common ownership refers to controlled groups, or businesses that have more than one location or franchise. In these cases, companies may consider each individual franchise its own free-standing organization, allowing them to remain a small employer and not be obligated to provide health insurance for employees. This is not accurate, however. If one company owns and controls all locations, then the business must count the number of workers at all franchises to determine their eligibility status, according to IRS standards. If the total number of employees across locations is 50 or more then organizations are required to provide coverage.

Minimum Wage

Employers with employees in multiple states have a lot to keep track of: 18 states had passed higher minimum wage rules by Jan. 1, 2019, according to the National Council of State Legislatures.

Businesses are required to pay employees the federal minimum wage – which is currently set at $7.25 – unless their state’s minimum wage is higher. This can be confusing for multistate employers, since one location may be required to pay their workers more than another, even if it’s just across state lines. Payroll teams must remain updated on any changes to their state laws to ensure employees receive the right compensation to avoid pay-related legal trouble.


Income tax withholding can be overwhelming enough for payroll teams when their employees work and live in the same state. What about those workers who are residents of one state and work in another? This is where the income tax withholding process becomes even more difficult. Businesses can usually follow the default rule from the IRS and SSA, which states taxes should be withheld for the state in which the services are performed when workers live and work in different places.

Payroll teams need to understand their state’s regulations regarding income tax withholding. Each will have its own definition of a resident. In addition, some states have reciprocal agreements, which allow organizations to withhold only for the state of residence, instead of the state of operations, according to CCH. Those states without these arrangements require companies to consider the laws of both states.

Leaves of Absence

While the federal government requires employers to follow the Family and Medical Leave Act, the Act allows states to establish more expansive standards. Businesses are not obligated to provide paid absences under the FMLA, but certain states do have these regulations in place, including California and New Jersey, the Society for Human Resource Management reported.

Payroll tax teams must educate their workers on the rules that apply to their employment. Being upfront with employees will foster a sense of trust between company leaders and their constituents and help organizations avoid legal issues in the future.


In addition to federal requirements for reporting on time and attendance across multiple locations, reporting on payroll across more than one location comes with its own hurdles.

Staying compliant means staying up-to-date with tracking and reporting – on top of all the other things you’re doing to keep your business running.

Our comprehensive multistate payroll tax guide, available to our clients, tracks all pay and file requirements for every state where they have employees. Paired with state-of-the-art web-based systems, we help ensure you are compliant with federal, state and local agencies and avoid common reporting mistakes.

Next Steps

Multistate payroll tax compliance can be confusing and stressful for human resources directors in charge of payroll. Local, state and federal regulations are always changing, requiring business leaders to constantly be on their toes.

Sometimes, this obligation can be too much for companies to keep track of on top of all their other duties. We can make the procedure more effective and efficient with both payroll tax software and services. Contact us to explore how we can eliminate your payroll tax headaches today.

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