Arkansas is a unique state when it comes to processing payroll. While some of its regulations are more complicated and will take more time to complete and check, other payroll tasks are simpler because there are no state laws. Some of the differences are noted below and are explained in detail throughout the article.
- Arkansas has a progressive state income tax rate with multiple tax brackets based on your employee’s income.
- Arkansas has more stringent child labor and final pay laws, although it has no laws on state disability insurance, pay statements, and pay deductions.
Regardless of your state, the payroll process can be complicated if you’re handling it manually. To save time and stay compliant with federal, state, and local laws, consider using a payroll software like Gusto. It calculates and pays your payroll taxes so you avoid late fees and penalties. And you can use it to pay your employees via direct deposit at no additional cost. Try it for free.
Running Payroll in Arkansas—Step-by-Step Instructions
Step 1: Set up your business as an employer. At the federal level, you need your Employer Identification Number (EIN) and an account in the Electronic Federal Tax Payment System (EFTPS).
Step 2: Register with the State of Arkansas. In Arkansas, you will need to register with the Department of Finance and Administration (DFA) to process payroll and remit business taxes. You can register with the DFA either online through the Arkansas Taxpayer Access Point or by mail using Form AR-1R. If you need any assistance, the DFA also offers FAQs to assist employers doing business in the state.
Step 3. Set up your payroll process. To set up your payroll you will need to set a pay schedule and determine a plan on paying employees (i.e., cash, check, direct deposit, pay cards) and processing payroll taxes and deductions.
Step 4: Collect employee payroll forms. The best time to collect payroll forms is during new hire orientation. Payroll forms include W-4, I-9, and direct deposit information. Arkansas also requires employees to submit form AR4EC to withhold income taxes and form AR4ECSP if the employee is claiming to be exempt from federal taxes.
Step 5: Collect, review, and approve time sheets. If you have hourly or nonexempt employees, you’ll need to track employee time. You can use one of our free time sheet templates or free or low-cost time and attendance software.
Step 6: Calculate payroll and pay employees. There are many ways to calculate payroll, and it’s up to you to decide which is best for your business. You can use payroll software, a calculator (use our free timecard calculator to do some basic time calculations), or even Excel (we have a free template).
Step 7: File payroll taxes with the federal and state governments. The IRS has forms and instructions on filing federal taxes including unemployment. You can also order official tax forms from the IRS. For Arkansas withholding taxes, you are required to remit monthly using Form AR941M unless the Arkansas Commissioner of Revenue sends you notification of any change in classification. These payments are due on the 15th of the month. If the Commissioner of Revenue decides that you are able to file annually, you are required to submit Form AR941A.
Please note: The DFA strongly recommends that you file payments and vouchers online through the Arkansas Taxpayer Access Point. The state also will automatically provide you with preprinted payment vouchers. You are required to file a voucher (either by mail or electronically) every period regardless if there were taxes withheld during that time.
Step 8. Do year-end payroll tax reports. The federal forms that are required are W-2s (for employees) and 1099s (for contractors). These forms need to be provided to employees and contractors by Jan. 31 of the following year. State W-2s are also required for Arkansas and the deadline to provide the forms to employees is also on Jan. 31.
If you want to learn more information on how to do payroll that’s applicable to businesses in all states, please visit our guide on how to do payroll.
Arkansas Payroll Laws, Taxes & Regulations
This section will explain what you need to know relating to payroll taxes, laws, and regulations in Arkansas. There are several items that differ from federal regulations. Arkansas has state income taxes as well as requirements relating to unemployment insurance, workers’ compensation, minimum pay frequency, and final pay laws. On the other hand, Arkansas does not have specific laws on what needs to be on pay stubs or what can be deducted from an employee’s paycheck.
First, however, federal law requires that you pay income taxes, Social Security, Medicare, and Federal Unemployment Tax Act (FUTA) taxes. Called FICA taxes, Social Security and Medicare are withheld from each employee’s paycheck at 6.2% and 1.45% respectively. You, as the employer, are also required to pay a matching amount out of your bank account. The FUTA rate is 6.0% on the first $7,000 that is paid to each employee in that year.
To learn more about federal payroll taxes and withholdings, see our article on taxes, FICA, and FUTA.
Arkansas has state income taxes but no local income taxes. The state also has requirements regarding unemployment insurance.
State Income Taxes
Arkansas has one of the most elaborate state income tax policies in the country. It mirrors the federal income tax table where it is progressive tax—meaning that high earners pay more in taxes than people who make less. However, it differs in one specific way. For federal taxes, each individual pays that same rate per income earned which is not the case in Arkansas.
For example, every individual has to pay 10% in federal taxes for the first $9,875 in taxable income. However, in Arkansas, an employee making $60,000 a year pays 0.75% for the first $4,499 in taxable income but an employee who makes $20,000 a year pays no taxes on its first $4,499 in taxable income. As a result, this policy is more favorable to employees who are in a lower income bracket.
You’ll need to follow Arkansas’s tax withholding tables to determine how much you need to withhold from most employees’ paychecks.
State Unemployment Tax
Arkansas’ state unemployment tax (SUTA) rate is 3.2% on the first $10,000 of an employee’s earnings for employers who do not have an established employment record. This is typically for the first three years of your business’ existence. For established companies, your rate is dependent on the size of your payroll and your voluntary termination rate. In short, the more benefits used by former employees the higher your unemployment rate. In 2021, the rate can be anywhere between 0.01% and 14%.
Tip: When you pay SUTA in full and on time, you may qualify for a 5.4% reduction on your FUTA taxes. This can significantly reduce what you pay to the IRS—from 6% to 0.6%.
You are required to provide workers’ compensation for employees in Arkansas if you have more than three employees, with a few exceptions. For example, farmers, real estate agents, and domestic workers may not be required to have coverage. If in doubt, you should reach out to the Arkansas Workers’ Compensation Commission. Even if it is not required by law, it is good business policy to purchase workers’ compensation insurance to protect against on-the-job injuries.
The cost of workers’ compensation insurance is around 70 cents for each $100 in payroll you process. For example, a company that processes $500,000 of payroll can expect to pay around $3,500 in insurance.
For more information and a list of providers to consider, check out our guide on Arkansas Workers’ Compensation.
Minimum Wage & Tips
Most jobs will require you to pay at least minimum wage. Arkansas’ current minimum wage policy is for employers who have four or more employees. The minimum rate is $11.00 per hour for employees with a couple of exceptions.
- Tipped employees can be paid $2.63 per hour as long as this wage along with their tips equates to $11.00 per hour.
- Full-time students can be paid $9.35 per hour as long as they are working fewer than 20 hours.
Although the federal minimum wage rate is $7.25 an hour, you’ll need to comply with Arkansas’ rate since it’s higher. If you need any assistance on the federal guidelines on exemptions, please use the following: Federal Exemptions for Minimum Wage.
Arkansas follows federal overtime law. You’ll need to pay 1.5 times the regular hourly rate for any hours your employees work over 40 in a workweek. Attempting to skirt overtime rules will result in your company underpaying in taxes and facing penalties for noncompliance.
If you need help with overtime calculations, please see our guide on calculating overtime.
Different Ways to Pay Employees
In Arkansas, you can pay employees by check, cash, pay cards, or direct deposit. However, you cannot require employees to receive their pay via direct deposit. If your company decides to pay all employees electronically and the employee does not agree to provide direct deposit information, you can pay the employee via a pay card. The employee must be able to have one free withdrawal for each payroll deposit.
If you need more information, please see our guide on how to pay employees for more in-depth information.
Minimum Pay Frequency
Arkansas requires that you pay employees twice a month. This means you are allowed to pay employees semimonthly, biweekly, or weekly, but not monthly. If you need help evaluating different pay schedules and which one would be right for your business, use one of our free pay period calendars to help.
Pay Stub Laws
There are no laws regarding pay stubs for employees in Arkansas. However, it is a good business practice to provide employees with an itemized description of wages and deductions.
If you decide on providing pay stubs and would like a template for creating your own pay statements, download one of our free pay stub templates. They’re already formatted, so you can print and use them as needed.
Paycheck Deduction Rules
Arkansas does not have any specific laws stating what can be deducted from an employee’s paycheck. Common deductions include:
- Garnishments and levies
Arkansas also allows you to take an up to 30 cent per hour allowance for room, board, clothing, and other items that would be considered an employee benefit, provided it does not put the employee’s hourly rate below the Arkansas minimum wage.
Final Paycheck Laws
Arkansas has different rules regarding final pay depending on whether the employee resigned (voluntary termination) or was terminated by the company (involuntary termination).
- Voluntary termination: Must be paid on the next regularly scheduled pay period
- Involuntary termination: Must be paid within seven business days of the next regularly scheduled pay period. Please Note: If you do not pay within this time period, you will owe the employee double the pay due.
If you find yourself needing to print a check for a terminated employee quickly, you can use one of our recommended free ways to print payroll checks online.
Arkansas HR Laws That Affect Payroll
Arkansas HR laws mostly follow federal guidelines, with the exception of regulations relating to child and youth employment.
Arkansas New Hire Reporting
Arkansas requires you to report new hires or rehires within 20 days of the hire date. You can report on using the Arkansas New Hire Reporting Center.
Breaks, Lunches & Time-Off Requirements
Arkansas generally follows federal law on breaks, with the exception of youth working in the entertainment industry.
- Breaks and lunches: Arkansas does not require employers to provide breaks to employees with the exception of youth under the age of 16 working in the entertainment industry.
- Vacation and sick leave: Arkansas does not require employers to provide vacation or sick leave.
- Family leave: Arkansas does not have a separate state law regarding family leave. Employers must follow the federal law in the Family and Medical Leave Act (FMLA). This law is for employers that have more than 50 employees for 20 or more weeks in the current or previous year. Employees can take FMLA leave if they have worked at the company for at least a year, with 1,250 hours worked in the previous year, and if their physical work location has 50 or more employees in a 75-mile radius. To learn more about FMLA, see the Department of Labor’s guide to FMLA.
State Disability Insurance
Arkansas does not have a state disability program and does not require companies to obtain disability insurance. However, it is a sound business policy, both for your employees and yourself.
Child Labor Laws
Youth must be at least 14 years old to be employed in Arkansas with a few exceptions. One exception would be a child working on a family farm.
For all youth under 17, you must maintain accurate records that include their:
- Full name
- Full home address
- Date of birth
- Job title
- Pay rate
- Employer’s certificate and/or work permit
- Hours worked by day including start and end time
- Total hours worked in a week
This is in addition to the required recordkeeping of adult employees.
Click through the tabs below for more information by age.
Fourteen- and 15-year-olds may work provided:
- The employer obtains a work permit from the Arkansas Department of Labor.
- Employers in the entertainment industry must obtain an entertainment work permit.
- The employee is working in an occupation not included in the hazardous occupations in the Arkansas’ Department of Labor’s Guide on Child Labor Administrative Rules. Hazardous occupations include working on a railroad, cooking, and operating power tools.
- On non-school weeks, they do not work
- More than six days a week
- More than eight hours a day
- More than 48 hours a week (federal law restricts this to 40 hours a week, so you’ll need to be mindful and comply with the strictest regulation)
- Before 6 a.m.
- After 7 p.m. when there is school the next day
- After 9 p.m. when there is not school the next day
Under federal law, they can’t work more than 18 hours during a school week or more than three hours per day.
Sixteen-year-olds may work provided:
- Employers follow federal law on the jobs and occupations they can perform—those typically considered non-hazardous. These rules can be found on the U.S Department of Labor’s Youth Rules section of its website. Some examples of hazardous occupations include mining jobs and operating power-driven meat or baking machines.
- They do not work
- More than six days a week
- More than 10 consecutive hours in a 24-hour period
- More than 54 hours a week
- Before 6 a.m.
- After 11 p.m. when there is school the next day
- After midnight when there is not school the next day, with some exceptions listed in Arkansas’ Department of Labor’s Guide on Child Labor Administrative Rules.
Seventeen-year-olds may work provided:
- Employers follow federal law on the jobs and occupations they can perform. These rules can be found on the U.S Department of Labor’s Youth Rules section of their website.
- No additional state restrictions are provided.
If you need more general information, please check out our guide to hiring minors
Listed below are some federal and state forms needed to produce accurate pay for employees and compliant payroll reporting and tax remittance for business.
Arkansas Payroll Forms
- Arkansas W-4 Form, AR4EC: To assist employers on calculating tax withholding for employees
- Arkansas Form AR4ECSP: To be given to employees who claim they are exempt from Arkansas state income taxes
- Arkansas Form AR941M: Monthly wage withholding report for employers
Federal Payroll Forms
- W-4 Form: Assists employers on tax withholding calculation for employees
- W-2 Form: Reports total annual wages earned (one per employee)
- W-3 Form: Reports total annual wages and taxes for all employees
- Form 940: Calculates and reports unemployment taxes due to the IRS
- Form 941: Files quarterly income and FICA tax withholding
- Form 944: Files annual income and FICA tax withholding
- 1099 Forms: Provides contractors with pay details that assist them in tax calculation
Arkansas Payroll Tax Resources & Sources
- Arkansas Taxpayer Access Portal: Register a business, access your business tax accounts, file returns, and make payments.
- Arkansas Workers’ Compensation Commission: Obtain more information related to Arkansas workers’ compensation requirement as well as other laws and rules relating to the protection and well-being of employees.
- Arkansas New Hire Reporting Center: Complete mandated new hire reporting and view frequently asked questions.
- Arkansas Division of Workforce Services: Obtain information relating to the calculation and payment of unemployment taxes.
For more information on payroll laws, please see our payroll compliance guide.
Arkansas payroll differs from other states by the way it structures state income taxes, its child labor laws, and its final pay policy to involuntary terminated employees. Be sure to follow deadlines and mandates by federal, state, and local governments to avoid any fees or penalties.