Appendix D - Multi-State Payroll

 

Overview

For the business with employees that work in different states and are subject to multiple state, city, and/or local taxes, multi-state payroll processing offers the ability to track contributions, earnings, and taxes for each state and each employee, and to print the required W-2s necessary for each state.

When the Payroll module is properly defined, it will calculate payroll and produce pay checks for all employees during the same payroll period and payroll check run regardless of their location.

Total Code Definition

Total codes must be defined to accumulate earning amounts for each state, as well as the total codes for total gross and taxable earnings. These total codes are the basis for calculating each state’s taxes where employees earn wages. For example, when employees work in both California and Arizona, total codes for California income and total codes for Arizona income must be established.

Pay Code Definition

Using the example of an employee who works in both California and Arizona, separate pay codes must be established for each state (e.g., RC for regular pay - California, RA for regular pay - Arizona, OC for overtime California, OA for overtime Arizona).

 

In the Total To field for each of these pay codes, be certain that the total code entered is the correct code for accumulating earning amounts for the appropriate state (e.g., enter the total codes for California income and for Arizona income to their respective pay codes).

Tax Code Definition

A state tax code must be established for each state where employees earn wages, along with codes for any city and/or local taxes applicable to wages earned in that state. To continue with the example, a state tax code for both California and Arizona must be established. These code parameters are used during Payroll Calculation to derive the correct tax for each state. When the employee doesn’t work in both states during a specific payroll period, only wages earned in that state are entered into payroll, and only taxes for that state will be calculated.Contribution Code DefinitionSeparate contribution codes must be defined for each state where employees earn wages and where employer taxes are paid (e.g., for State Disability Insurance or Workers Compensation Insurance). Per the example, separate contribution codes for payment of State Disability Insurance taxes for the states of California and Arizona must be included. Each individual state will have unique requirements. Refer to the State Tax Guides for additional employer-paid state taxes.

Title Code Definition

When employees work under different titles and/or rates in the states where they earn wages, enter the appropriate titles and standard rates for each title when defining the title ID codes. This allows reporting of employee earnings by title on the Payroll Distribution and Distribution History Reports.

Tax Table Definition

Tax tables must be established for each state where employees earn wages. In the previous example, this includes all tables required for both California and Arizona. For some states, additional tables may be required for city and/or local taxing jurisdictions (refer to the appropriate Local Tax Guides).

Payroll Maintenance

Employee Masterfile Information

When establishing employee records in the Employee Masterfile Maintenance task, enter all standard payroll information, including the Normal Pay Period when the employee is paid, the Home Department where the employee normally works, and the Normal Title under which the employee works.

Pay Rate Maintenance

In the Pay Rate Maintenance task, enter all the appropriate title ID codes and rates under which the employee works. Entry of standard hours in the Hours field is not necessary, since hours for employees who work in multiple states must be manually entered in Payroll Entry (i.e., earnings are not automatically generated).

Contribution, Pay, and Tax Code Maintenance

In the Pay Code Maintenance, Tax Code Maintenance, and Contribution Code Maintenance tasks, enter all applicable pay codes, tax codes and employer contribution codes for each employee, as established above. Be sure that all codes associated with each state are assigned to each employee (i.e., when a pay code is defined for an employee for wages paid in the state of Arizona, remember to assign the tax code and any applicable contribution codes for employer-paid taxes in the state of Arizona).

Payroll Processing

Each payroll period, use the Payroll Entry task to enter the appropriate pay codes and hours worked for each multi-state employee. Earnings are automatically calculated and displayed, based on the pay code and number of hours (or other units) entered. Earnings for each state in which the employee has worked during the pay period must be entered on a separate line, using a separate pay code.

All contributions and taxes for each state are automatically generated during the Payroll Calculation process along with employee deductions and accruals. Each state should be printed separately.  Refer to Operations Section, Payroll Periodic Processing task for special instructions on printing W-2s.