How to Track Salary & Wages Across Multiple States

Tracking salary and wages across multiple states in the U.S. can be a challenging task, especially as each state has different tax laws, minimum wage requirements, benefits regulations, and cost-of-living factors. Whether you are a business owner managing employees in various states, a human resources (HR) professional, or a payroll manager, understanding how to efficiently track and manage compensation across state lines is critical for compliance and for optimizing workforce management.

This comprehensive guide will explore the complexities of tracking salary and wages across multiple states, covering important areas such as tax considerations, state-specific minimum wage laws, benefits, and compliance with federal and state regulations.

Understanding State-Specific Salary Regulations

Each state in the U.S. has its own set of labor laws that can influence how salaries and wages are managed. These laws affect everything from minimum wage to overtime pay, tax withholdings, and employee benefits. Therefore, it's essential to have a firm grasp of the unique requirements for each state where you have employees.

Minimum Wage Variations

The minimum wage varies significantly between states and even within specific cities or counties within a state. For instance, while the federal minimum wage is set at $7.25 per hour, many states have enacted higher minimum wage laws. In cities like San Francisco, the minimum wage may be as high as $16.32 per hour as of 2025. For businesses operating in multiple states, it's important to track the minimum wage for each state and locality to ensure compliance.

Key Points to Track:

• Federal vs. State Minimum Wage: Always ensure that employees are paid at least the state minimum wage, and in some cases, cities or counties may have higher wage requirements than the state.
• Overtime Pay: Federal law requires that employees are paid 1.5 times their regular rate for overtime. Some states may have additional regulations regarding overtime, such as daily overtime limits.

State-Specific Tax Laws

State income tax varies widely across the U.S., and this can significantly impact an employee's take-home pay. Some states, like Texas, Florida, and Nevada, do not have a state income tax, while others have progressive tax rates based on income levels, such as California and New York. Tracking state tax laws and withholding requirements is crucial for accurate payroll processing.

• State Income Tax Rates: These can differ not only in the rates but also in how income is taxed (progressive vs. flat).
• Local Taxes: Some local jurisdictions impose additional taxes, such as city income taxes, which can vary widely.

Paid Sick Leave and Other Benefits

States such as California, New Jersey, and Massachusetts have mandated paid sick leave, and tracking these benefits across multiple states can become complex. Additionally, some states require employers to provide certain benefits like family leave or retirement contributions. Staying compliant with each state's regulations is critical for both employer and employee satisfaction.

Tracking Payroll Across Multiple States: Key Considerations

Centralized Payroll System vs. State-Specific Payroll Systems

When managing payroll across multiple states, the first decision businesses face is whether to use a centralized payroll system or a state-specific system. A centralized payroll system can make tracking easier by consolidating payroll data, but it must be flexible enough to handle the unique requirements of each state.

A state-specific payroll system might seem like a good idea for businesses with a presence in only a few states, but this can become burdensome as the company expands into more locations. The challenge lies in the constant updates to tax laws, wage rates, and compliance requirements. Most companies find that investing in a reliable payroll software solution is the most efficient way to manage payroll across multiple states.

Using Payroll Software

Payroll software can automate much of the process of tracking salaries and wages across states. Most modern payroll platforms allow businesses to track the following:

• Tax Withholding: Payroll software can automatically calculate the state, federal, and local tax withholdings based on the employee's location.
• State-Specific Benefits Compliance: It ensures that benefits like paid sick leave, family leave, and retirement contributions are in compliance with the laws in each state.
• Time Tracking and Overtime Calculation: It calculates overtime based on the different overtime laws that apply in various states.

Choosing the right payroll software is crucial. Some well-known payroll software systems include Gusto, ADP, and Paychex, which cater to businesses operating in multiple states.

Payroll Deductions

Each state can have its own specific deductions. Some states require certain benefits, like unemployment insurance or workers' compensation, to be deducted from an employee's paycheck. These deductions vary depending on the state and whether the employee is full-time or part-time.

For instance, in states like New York, businesses must contribute to unemployment insurance, whereas other states like Texas do not have this requirement. Payroll software can help track these deductions accurately by automating the calculations based on the state in which the employee resides.

State-Specific Benefits and Compliance

Tracking benefits and ensuring compliance with state-specific regulations can be a daunting task. Below are some key state-specific benefits and regulations that require special attention:

Unemployment Insurance and Workers' Compensation

Each state has its own system for unemployment insurance (UI) and workers' compensation. Employers must track the contributions for each employee and ensure they are contributing at the appropriate rates.

• Unemployment Insurance: Some states have different rates for UI based on the employer's history (e.g., how many claims the employer has filed). Additionally, the maximum benefit amount varies between states.
• Workers' Compensation: Every state requires workers' compensation insurance, but the requirements for coverage, premiums, and claims processes can differ. In some states, employers are required to purchase this insurance through a state-run program, while others allow private insurance providers.

Paid Family and Medical Leave

As of recent years, several states have implemented paid family and medical leave programs. These laws vary greatly across states in terms of eligibility, benefit amounts, and duration. For instance, California's Paid Family Leave (PFL) program offers benefits to workers taking time off for the care of a seriously ill family member, while other states like Texas do not have any paid family leave mandates.

Retirement Contributions

Some states, like California and Illinois, require employers to either provide access to a retirement plan or automatically enroll employees in a state-sponsored retirement program. Tracking this can be complex, especially if you have employees working in multiple states with different regulations regarding retirement plans.

Payroll Tax Filing Across Multiple States

When operating across multiple states, filing payroll taxes can quickly become overwhelming. Each state has different filing requirements for both employer and employee taxes. Below are the key aspects of state payroll tax filings:

State Unemployment Insurance (SUI) and State Income Tax Withholding

Employers need to register for state unemployment insurance (SUI) and state income tax withholding in each state where they have employees. Different states have different due dates for these filings, and penalties can apply for late or incorrect filings. Payroll software can help streamline this process, but employers must still be vigilant about meeting each state's specific requirements.

• Quarterly Filings: Most states require employers to file quarterly payroll taxes, including unemployment insurance and income tax withholding.
• Annual Filings: Some states require annual reconciliation of taxes, where businesses must file annual returns to ensure the accuracy of tax withholdings and employer contributions.

Multi-State Tax Filing

For employees working in multiple states, you may need to withhold taxes for both their home state and the state in which they work. This can lead to complex tax filings, especially if the states have reciprocal agreements that allow employees to only pay taxes in their home state.

Managing Employees Who Work in Multiple States

In some cases, employees may work in multiple states, either regularly or for short periods. Tracking wages and salary for these employees requires special attention to ensure accurate withholding and reporting.

Non-Resident Employees

If an employee is a resident of one state but works in another, the employer must often withhold taxes for both states, depending on whether the states have reciprocal agreements. If there are no agreements, the employee may have to file tax returns in both states to claim a refund or pay additional taxes.

Temporary and Remote Workers

With the rise of remote work, employees may live in one state but work remotely from another. Employers must be diligent in understanding where the employee's work is performed for tax withholding purposes. Additionally, some states tax remote workers differently than those who work onsite in a state.

Staying Up-to-Date with Changing State Laws

State laws change frequently, and businesses need to stay up-to-date to ensure compliance. It is essential to track updates to wage laws, tax rates, benefits regulations, and other state-specific laws. Many states update their minimum wage laws annually, and tax rates can fluctuate based on new state budgets or legislation.

Resources to Track Changes:

• State Government Websites: Most state labor departments provide updates on changes to employment laws.
• Payroll Software Providers: Many payroll systems automatically update tax rates, wage laws, and other relevant regulations, which can help businesses stay compliant.
• Legal Counsel or Compliance Services: Consulting with legal experts or compliance services can help businesses navigate complex multi-state regulations.

The Importance of Record-Keeping and Reporting

Accurate record-keeping is a fundamental aspect of managing payroll across multiple states. Employers must track the following:

• Employee Location and Work Location: This helps determine which state tax rates to apply.
• Wage and Hour Tracking: Ensure accurate tracking of hours worked, overtime, and any additional bonuses or commissions.
• Tax Withholdings: Record all state and federal tax withholdings, as well as local taxes, if applicable.

Proper reporting ensures that businesses can accurately file taxes, handle audits, and demonstrate compliance with all applicable state and federal laws.

Conclusion

Tracking salaries and wages across multiple states can be complex due to the variation in state-specific laws, tax regulations, and benefit requirements. However, by leveraging technology like payroll software, understanding the nuances of each state's laws, and staying organized, businesses can ensure that they comply with all regulations while managing compensation efficiently. With the right tools and practices in place, companies can effectively navigate the challenges of multi-state payroll, avoid costly errors, and provide employees with accurate and timely compensation.

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