Payroll in North Carolina is pretty straightforward and follows general federal guidelines, requiring you to secure a Federal Employee Identification Number, NC Withholding Identification Number, and register for unemployment tax. However, there are still several labor law regulations that must be considered to ensure state payroll compliance. Using our guide below will ensure you take the proper steps to correctly do payroll in North Carolina.
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Running Payroll in North Carolina: Step-by-Step Instructions
Step 1: Register your business on the federal level. In order to register your business for withholding and unemployment taxes in North Carolina, you must have a Federal Employee Identification Number (EIN). Although it’s not required, we also encourage you to enroll in the Electronic Federal Tax Payment System (EFTPS), making it easy to pay your federal taxes online or over the phone.
Step 2: Obtain a Withholding Identification Number from the North Carolina Department of Revenue. Each new employer paying wages in the State of North Carolina must register for a Withholding Identification Number by filling out a Form NC-BR and submitting it to the North Carolina Department of Revenue.
Step 3: Register for Unemployment Tax with the North Carolina Division of Employment Security (DES). Your small business must register with the NC DES. Once registered, you’ll be issued a North Carolina unemployment insurance number (Employer Tax Account Number) automatically.
Step 4: Collect employee paperwork. To run payroll you will need to collect specific information from each employee:
Step 5: Collect, review, and approve employee time sheets. Your employees will fall under one of two statuses: W-2 for all regular employees or 1099 for independent contractors. You must collect and approve time sheets before submitting payroll for each. We recommend time tracking software that can save you time and ensure the accuracy of reported hours.
Step 6: Process payroll and remit payment to your employees. This step requires that you have a payroll process yourself or use an excel spreadsheet. You also can use a payroll software system or just calculate payroll on your own, you must pay your employees on a regular schedule (daily, weekly, biweekly, semimonthly, or monthly). Be sure to also comply with minimum wage requirements.
Step 7: File payroll taxes with federal and North Carolina state governments. Based on your withholding frequency, you must file Form NC-5 (monthly and quarterly withholding filers) or Form NC-5Q (semiweekly withholding filers). You can file your taxes online with the North Carolina Department of Revenue. The form you’ll use for federal tax filing depends on if your business is a sole proprietorship or LLC (Schedule C) or corporation (Form 1120 or 1120-S).
Step 8: Process annual payroll reports: Every employer, regardless of which state your business is in, will need to complete W-2s for all employees and 1099s for independent contractors. By law, you must provide all employees and contractors with their annual tax form no later than Jan. 31 of the following year.
For general instructions on the basics of doing payroll, check out our guide on how to do payroll.
North Carolina Payroll Laws, Taxes, and Regulations
North Carolina follows the general federal payroll laws currently in place, making it a simple state for payroll taxes and regulations.
There are a few regulations, however, to consider:
- Employers are required to notify new hires orally or in writing about their wages and regular pay schedule.
- Employers are required by law to provide written notice at least 24 hours before any reduction in wages.
- Employers must abide by the minimum wage law and pay time and a half to nonexempt employees who work over 40 hours in a workweek.
North Carolina Payroll Taxes
Every North Carolina employer is responsible for paying payroll taxes, as well as Social Security, Medicare, and unemployment taxes for every employee. Social Security and Medicare taxes are paid under the Federal Insurance Contributions Act (FICA). The employer pays half of FICA, and the other half is paid from the employee’s wages, resulting in each party paying 6.2% for Social Security and 1.45% for Medicare.
Employers must also pay State Unemployment Taxes (SUTA) and Federal Unemployment Taxes (FUTA) based on a percentage of each employee’s salary. The North Carolina new employer SUTA rate is 1%. After 12 months of paying into the system, you will receive a new SUTA rate each year. FUTA is taxed at 6% on the first $7,000 earned.
Keep in mind that the following services are exempt from withholding laws:
- Agricultural labor, except where subject to federal withholding
- Domestic service in a private home
- Services performed by military spouses that are federally exempt, under the Veteran’s Benefits and Transition Act of 2018
State Income Taxes
North Carolina has a flat income tax rate of 5.25%. This means that regardless of an employee’s taxable income or filing status, the rate is the same for all. North Carolina requires employers to withhold state income tax from employees’ wages and remit the amounts withheld to the Department of Revenue. Any employer that does business or has an employee in North Carolina, whether the employer is a state resident or not, must withhold state tax.
There are no local or city taxes in the State of North Carolina, making it one of the easier states in which to file payroll taxes.
Unemployment Insurance Taxes
If your small business has employees working in North Carolina, you’ll need to pay North Carolina unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees.
Employers must file a Quarterly Tax and Wage Report (Form NCUI 101). Both tax and reported wages are due by the last day of the month following the end of each quarter.
North Carolina 2021 UI Tax Rates
Taxable Wage Base for 2021
Employer’s Reserve Ratio Percentage (ERRP)
Employer’s Reserve Ratio multiplied by 0.68
UI Tax Rate for New Employers
Minimum UI Tax Rate
Maximum UI Tax Rate
Workers’ Compensation Insurance
All businesses with three or more employees in North Carolina are required to carry workers’ compensation insurance coverage to assist with medical costs in case employees are injured on the job. Workers’ Compensation Insurance is administered through the North Carolina Industrial Commission.
Exceptions to the three-employee rule:
- Businesses whose work involves the use or presence of radiation must carry workers’ compensation on as little as only one employee.
- Agricultural employees are not required to carry workers’ compensation unless they employ 10 or more full-time, nonseasonal workers.
- Federal workers’ compensation is covered under the U.S. Department of Labor.
Be sure to follow all guidelines for workers’ compensation insurance. Failure to provide workers’ compensation insurance could result in penalties, a misdemeanor or felony charge, and even imprisonment.
Minimum Wage Laws in North Carolina
Employers must pay all nonexempt hourly employees a minimum wage of $7.25 (the current rate under both state and federal labor laws). For salaried exempt employees, employers must pay a guaranteed salary of $684 per workweek ($35,568 per year).
However, for employers that have tipped hourly employees, such as restaurants, the minimum wage is set at $2.13 so long as the tips the employee receives bring their hourly wage up to the minimum of $7.25. This is known as a “tip credit.” However, if the worker’s tips do not bring their hourly rate up to minimum wage, the business must offset the cost so that the employee is making at least $7.25 per hour.
North Carolina Law also allows tip pooling — the combining of all tips received and then the distribution of the collected monies equally between employees.
North Carolina Overtime Regulations
There are no labor laws in North Carolina that limit the number of hours an employee 18 years or older can work. However, nonexempt employees are required to receive time and a half overtime pay if their working hours reach beyond 40 hours per workweek. Exempt employees are not subject to overtime pay.
Private employers are not permitted to give comp time to nonexempt salaried employees in place of time and half. Simply being paid a salary does not exempt an employee from receiving overtime pay.
Different Ways to Pay Employees in North Carolina
There are currently no laws in North Carolina that designate a specific form of payroll payment. Therefore, employers may pay their employees using any legal method they choose, as long as payment is made in full on the designated payday.
Acceptable forms of payment include:
- Money Order
- Direct Deposit
- Debit-Payroll Card
If an employer chooses to pay with a debit-payroll card, to be compliant, the employee must be able to withdraw all funds on payday; also, there should be no cost to the employee for use of the card.
North Carolina Pay Stub Laws
North Carolina requires employers to provide written or printed pay stubs. This also includes electronic pay stubs that can be printed out by the employee.
If you need assistance with creating pay stubs, check out our free pay stub template for guidance.
Minimum Pay Frequency
North Carolina does not have a mandatory pay frequency law; therefore, employers have a few options when it comes to how often they are required to pay their employees:
Paycheck Deduction Rules
Some deductions from paychecks are required by law, including state and federal income taxes and FICA. Court-ordered garnishments such as child support or debt, can also be automatically deducted from an employee’s paycheck based on the ordered amounts and frequency.
Additionally, North Carolina employers can deduct the following from employee paychecks with prior written consent:
- Health insurance premiums (medical, dental, vision, FSA, HSA)
- Retirement plans 401(k)
- Life and disability insurance premiums
- Job-related expenses, such as uniforms
- Tuition costs
- Donations for charity
- Purchases that require reimbursement by the employee
Final Paycheck Laws in North Carolina
North Carolina law states that an employee must receive their final paycheck on or before the next available payday following their termination, whether they quit or were terminated by the company. The final paycheck must include payment for all hours worked, commissions due, and any accrued but unused paid time off. Additionally, final paychecks can’t be held until the return of company equipment.
If you’re not using a payroll service and need to pay an employee quickly, use our guide to printing payroll checks free for help.
North Carolina Severance Pay Laws
North Carolina labor laws do not require employers to pay a severance upon employee termination. Should an employer choose to provide severance benefits, they must comply with any terms or conditions established by a severance policy or employment contract.
Accrued Paid Time Off
If there are no company policies in place, the employer is required to pay employees for accrued time off upon termination of employment (voluntary or involuntary). Earned time off cannot be forfeited unless the employer has a written forfeiture clause in its company policies (under N.C.G.S. 95-25.13(2)). This means that if your company handbook or policies manual does not specifically state what happens with accrued paid time off, you are liable to pay it upon termination.
North Carolina HR Laws That Affect Payroll
Human resources laws in North Carolina align with federal guidelines. While there are no special requirements, you should be aware of federal rules.
North Carolina New Hire Reporting
Federal law requires employers to report all new hires and rehired employees in the state of North Carolina within 20 days of hire to the Division of Social Services (DSS) State Directory of New Hires. Employers must first register with the DSS and then log in to report any new hires.
Lunch and Other Break Time Requirements
State law only regulates rest breaks or meal breaks for youths under 16 years of age, as required by the Wage and Hour Act. Youths under 16 must be given a minimum 30-minute break after five consecutive hours of work.
Lunch or break time is not required for any employee age 17 or older, regardless of the number of consecutive hours they work.
Child Labor Laws
The Wage and Hour Act protects minors by restricting the types of jobs and the number of hours they are allowed to work. North Carolina law follows the federal employment guidelines for youths under the age of 18 employed in non-farm jobs. Employment in certain occupations, such as hazardous or detrimental occupations, is not allowed for those under the age of 18. Additionally, federal law prohibits you from scheduling minors to work during school hours on school days.
Please note: Federal law restricts 14- and 15-year-olds from working more than 15 hours per week during the school year. In addition, 16-year-olds cannot work past 7 p.m. on school nights and 9 p.m. on non-school nights. For more information, please visit the Federal Wage and Hour Division of the U.S. Department of Labor.
Work Permit for Minors
Employees between the ages of 14 to 17 who work in North Carolina must obtain a Youth Employment Certificate.
Once the minor has registered, they will receive a Youth Employment Identification (YEID) number. To obtain the certificate, they must provide their YEID number to their employer.
The employer can then begin the process:
- You must verify the youth’s age, proposed job duties, and any restrictions.
- You then enter the appropriate business and employer information with the North Carolina Department of Labor. The YEID number must be entered during this process.
- Once submitted, an email will be sent to the youth for the next step in the process.
- After the youth and the parent/guardian sign the certificate, you will receive an email with the completed youth employment certificate attached.
- As a best practice, you should retain a copy of the certificate for three years after the youth turns 18 or separates from employment.
Payroll forms, beyond federally required forms that must be submitted in the state of North Carolina are limited to those of unemployment tax. You will be required to file a quarterly wage report to the Division of Employment Security.
North Carolina State W-4 Form
North Carolina requires employers to obtain a federal W-4 form from all employees to determine the number of withholdings from their paychecks. Additionally, you should collect an NC-4 form from employees. The NC-4 makes sure you are withholding the correct amount of state income tax. Should an employee not provide you with an NC-4 form, you are required to set their withholding to “single,” zero exemptions.
Unemployment Tax Forms
North Carolina employers, doing business as a sole proprietorship, partnership, or corporation, must file a quarterly Unemployment Insurance Tax Payment as well as the Employer’s Quarterly Tax and Wage Report (NCUI 101). You may also be required to pay unemployment insurance tax on any North Carolina business you acquire that is already subject to the tax.
Both taxes and reported wages are due by the last day of the month following the quarter and must be submitted even if the employer has no employees in that quarter.
Federal Payroll Forms
- W-4 Form: To help employers calculate taxes to withhold from employee paychecks
- W-2 Form: Reporting total annual wages earned (one per employee)
- W-3 Form: Reports total wages and taxes for all employees
- Form 940: Reports and calculate unemployment taxes due to the IRS
- Form 941: Filing quarterly income and FICA taxes withheld from paychecks
- Form 944: Reporting annual income and FICA taxes withheld from paychecks
- 1099 Forms: Providing non-employee pay information that helps the IRS collect taxes on contract work
For a more detailed discussion of federal forms, check out our guide on federal payroll forms you may need.
North Carolina Payroll Tax Resources/Sources
How Often to Submit
Withholding Payment Voucher (NC-5P)
Withholding Return (NC-5)
Quarterly Income Tax Withholding Return (NC-5Q)
Annual Withholding Reconciliation (NC-3)
Wage and Tax Statement (NC-W2)
Unemployment Insurance Tax Payment
Employer's Quarterly Tax and Wage Report (NCUI 101)
New Hire Report
Each New Employee
When it comes to setting up payroll for your employees, you’ll be responsible for more than just providing a paycheck. Every employer must withhold and remit payment for all payroll taxes to both the Department of Revenue and the state of North Carolina. Additionally, you must pay unemployment insurance taxes. While the process can be simple, specific labor laws can be tricky so be sure to follow all requirements listed in this article to properly set up and submit your payroll.
If you want to simplify doing payroll in North Carolina, try Gusto. It stays abreast of all state and federal payroll regulations, so you don’t have to. It also pays your payroll taxes and your employees their paycheck electronically. Sign up for a free trial to try it out.