Processing payroll in Pennsylvania is pretty simple overall, as most of its regulations are in line with federal employment laws. However, what does make Pennsylvania more complicated than some states is its multiple taxes. With state income tax, earned income tax, and local and city taxes, you’ll need to know which taxes you and your employees are responsible for paying.
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Running Payroll in Pennsylvania: Step-by-Step Instructions
Step 1: Set up your business as an employer. At the federal level, you need to apply for a Federal Tax ID and register for an account in the Electronic Federal Tax Payment System (EFTPS).
Step 2: Register with the Pennsylvania Department of Revenue. You can register for both Income Withholding and Unemployment Insurance tax accounts online using the PA-100 Business Entity Registration Form. You should receive your account number automatically after completing the online registration.
Step 3: Register for City Taxes. If you are paying an employee in either the City of Pittsburgh or the City of Philadelphia, you will be required to register for tax accounts with those cities individually.
City of Pittsburgh: If you do not have a City ID and will be paying an employee in Pittsburgh, you must register your business with the City of Pittsburgh. You will want to select Payroll Expense Tax, Local Services Tax, and Earned Income Tax with Jordan Tax Service. You should receive your number one to two days after registering.
City of Philadelphia: If you do not have a City ID and will be paying an employee in Philadelphia, you must register your business with the City of Philadelphia. You can register with the City of Philadelphia Department of Revenue online. You should receive your account number automatically after completing the online registration.
Step 4: Register for local taxes. If one of your worksites is located in Pennsylvania, you are required to withhold and remit the local Earned Income Tax (EIT) and Local Services Tax (LST) on behalf of employees working in Pennsylvania. Worksites include factories, offices, branches, and warehouses. You can register by completing an Employer Registration Form and remitting it to your local tax collector.
Step 5: Set up payroll and collect employee forms. Whether you’re going to do payroll yourself or use a payroll software, you’ll need to determine a pay cycle that is compliant with PA law and establish a process that works for your business. It’s best to collect employment forms from new hires during the onboarding process. Forms include W-4, I-9, and Direct Deposit information. Pennsylvania does not have any additional forms.
Step 6: Collect, review, and approve time sheets. Make sure to do this a couple of days before payday, as Pennsylvania Wage Payment and Collection Law says employees must receive their wages no later than the specified payday. Use one of our free time sheet templates to help if you don’t yet have an established system.
Step 7: 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, or even Excel.
Step 8: File payroll taxes with the federal and state government. All state and local tax payments need to be made directly to the applicable agency based on whatever schedule is assigned to your business. Federal tax payments must be made via EFTPS. Generally, you have to deposit federal income tax withheld and both employer and employee Social Security and Medicare taxes based on the schedule assigned to your business by the IRS. The IRS can assign you to one of the following depositing schedules:
- Monthly Depositor: Requires that you deposit employment taxes on payments made during a month by the 15th day of the following month.
- Semi-Weekly Depositor: Requires that you deposit employment taxes for payments made Wednesday, Thursday, and/or Friday by the following Wednesday. Deposit taxes for payments made Saturday, Sunday, Monday, and/or Tuesday by the following Friday.
It’s important to note that schedules for depositing and reporting taxes are not the same. Employers who deposit both monthly and semi-weekly should only report their taxes quarterly or annually by filing Form 941 or Form 944.
Step 9: Complete year-end payroll reports. You will need to complete W-2s for all employees, and 1099s for all independent contractors. Both employees and contractors must have received these documents by January 31 of the following year.
Pennsylvania Payroll Law, Taxes and Regulations
Pennsylvania payroll laws are very in line with many of the federal regulations. There are some overtime laws and specific taxes you’ll need to stay abreast of. Overall, it is important to remember that Pennsylvania has state tax, earned income tax, and local taxes, which can make things a bit more complicated.
Pennsylvania Payroll Taxes
While there are no state or local taxes that you will be directly liable for as a Pennsylvania employer, you will be responsible for withholding and remitting them on behalf of your employees. Pennsylvania has both state and local taxes for its residents, so it’s important that you have a general understanding of what those are to ensure you’re in compliance.
State Income Tax
The state personal income tax withholding rate for all employees in Pennsylvania is a flat 3.07%. Employers are required to withhold state withholding from an employee’s income and remit it on their behalf, based on the following schedule:
If total withholding is under $300 per quarter, the taxes are due the last day of April, July, October, and January.
If total withholding is $300 to $999 per quarter, the taxes are due the 15th day of the following month.
If total withholding is $1,000 to $4,999.99 per quarter, the taxes are due within three banking days of the close of the semi-monthly period.
If total withholding is $5,000 or greater per quarter ($20,000 per year), the taxes are due on a Wednesday following the pay dates for employers whose paydays fall on a Wednesday, Thursday, or Friday; and on the Friday following the pay dates for employers whose paydays fall on Saturday, Sunday, Monday, or Tuesday.
Employers with worksites located in Pennsylvania are also required to withhold local EIT and LST on behalf of their employees working in PA. The Department of Community and Economic Development assigns PSD (political subdivision) codes to each municipality to help employers and tax collectors to remit the correct amount of local Earned Income Tax.
These PSD codes also help employers to know which agency is responsible for their district. With over 50 Tax Collection Agencies responsible for local taxes within the state of Pennsylvania, it’s important to know which one to register with and remit taxes to so that you can avoid making any mistakes.
Employees are required to complete a Residency Certification Form upon hire, which you will be required to keep with their employee files. If you ever have any issues with this or need verification for a Pennsylvania employee, you can visit the DCED website and search by address to determine the proper PSD codes.
Unemployment Insurance Tax
Pennsylvania has a state Unemployment Compensation (UC) fund that protects workers against job loss by providing temporary income to qualified individuals. Employer contributions, charged for the first $10,000 that each employee earns in a calendar year, are the primary funding.
Every calendar year, a contribution tax rate is computed and mailed to each employer for the following year. If you disagree with the information on the rate notice, you can file an appeal within 90 days of the date of the rate notice.
The first time you pay wages in Pennsylvania, you will be considered a “new employer” and assigned a contribution rate of:
There are exceptions to the Pennsylvania UC Law that exclude certain employers from being liable. Those exceptions include:
- Sole Proprietorships/Partnerships: Owners of an individual entity or partnership are considered self-employed. Self-employed individuals are not technically employees, and their earnings are not considered wages.
- Family Employment: If an individual is employed by a son, daughter, or spouse, or a child under the age of 18 is employed by a parent. Additional covered family includes stepchildren and their parents, foster children and their parents, and adopted children and their parents.
- Agricultural Employment: If there are fewer than 10 employees for over 20 calendar weeks or if there is less than $20,000 in cash wages paid.
- Domestic Employment: Individual homeowners, local college clubs, fraternities, or sororities paying less than $1,000 during any quarter of the calendar year.
- Elected vs Appointed Officials: Services of an elected official.
It’s important to remember that you will also be responsible for federal unemployment taxes. The standard rate is 6% on the first $7,000 of each employee’s taxable wages. The maximum tax you’ll pay per employee is $420 ($7,000 x 6%).
Tip: When you pay state unemployment taxes, you may qualify for up to a 5.4% discount on your federal unemployment insurance taxes. This can significantly reduce what you pay to the IRS—from 6% to 0.6%.
Workers’ Compensation Insurance
Workers’ compensation insurance covers medical bills, rehabilitation costs, and lost wages for employees who get injured or experience a work-related illness. Coverage is mandatory for most employers under Pennsylvania law. You can obtain workers’ compensation insurance through a licensed insurance carrier or the State Workers’ Insurance Fund (SWIF).
Some employers are exempt from workers’ compensation coverage. Exemptions include railroad workers, longshore workers, federal employees, domestic servants, and certain agricultural workers; there are also exemptions for religious beliefs and executive status in certain corporations.
Pennsylvania Minimum Wage
The current minimum wage in Pennsylvania is $7.25 per hour, which is the same as the current federal minimum wage. The Pennsylvania Minimum Wage Act established that as of July 1, 2021, the minimum wage in Pennsylvania will be raised to $12 per hour with annual increases until reaching $15 per hour July 1, 2027.
The below updates to the state minimum wage will be effective as of July 1 each year, so you’ll need to be sure what you’re paying employees aligns:
If you do any of the following, you will violate the Pennsylvania Minimum Wage Act:
- Misclassifying employees as exempt from overtime when their job duties should qualify them from overtime pay.
- Deducting expenses in large enough amounts that the employee’s take-home pay falls below the minimum wage.
- Not making up the difference for tipped employees whose tips don’t raise their pay to the minimum wage.
Violating the Pennsylvania Minimum Wage Act may subject your business to serious fines, penalties, and other legal consequences.
Pennsylvania Overtime Regulations
There are three major differences between federal overtime laws and Pennsylvania’s regulations.
- Pennsylvania does not recognize the highly compensated employee exemption, which allows employers to avoid paying overtime to employees who earn more than $107,432 annually. Pennsylvania does not recognize this threshold, so you’re liable for paying eligible employees overtime regardless of how much they earn.
- Federal overtime laws do not require overtime for certain computer employees; however, Pennsylvania does not have an exemption for these employees. Pennsylvania requires that overtime must be paid.
- Pennsylvania’s rule has a higher salary threshold that executive, administrative, and professional employees need to make in order to be exempt from overtime. The salary threshold is set to increase annually on Oct. 3 as follows:
Starting in 2023, the salary threshold will adjust automatically every three years based on the average wages of occupations in Pennsylvania that are exempt.
The Pennsylvania Department of Labor requires an employer to pay overtime to employees, unless otherwise exempt, at 1.5x the employee’s regular rate of pay for all hours worked in excess of 40 hours in a workweek.
Different Ways to Pay Employees in Pennsylvania
While there are many different ways to pay employees, Pennsylvania’s Wage Payment and Collection Law specifies that an employer must pay wages by either:
- Direct Deposit (with employee consent)
- Pay Cards (while originally not permitted, an amendment was passed in 2017 allowing the use of pay cards as long as your employees are explicitly made aware of all payment options and it is their choice to be paid via pay card)
If you’d like to pay your Pennsylvania employees via direct deposit, consider using Gusto. Gusto offers direct deposit for no additional cost and allows you to still pay with physical checks if needed. In addition, it comes with a pay on-demand feature that your employees can use to access part of their paychecks early—as they earn it. Try it free for 30 days.
Pennsylvania Pay Stub Laws
There are no guidelines set forth by Pennsylvania law regarding pay stubs. It is not required that a certain format is followed or even that an employer provides a pay stub at all.
Tip: While there are no state regulations regarding pay stubs, we still recommend that you provide them to your employees for all payments as a best practice. This is particularly important when you make any cash payments. Check out our free pay stub template article for additional guidance.
Minimum Pay Frequency
Pennsylvania employers are required to pay their employees at least semi-monthly, meaning that they are paid two times per month. The first payment has to be between the first and 15th day of the month, and the second payment must be made between the 14th and the last day of the month. The waiting time between the end of a pay period and payday must not exceed 15 days.
If you need help understanding pay periods or deciding which pay period is best for your organization, check out our article on pay periods and download one of our free payroll calendars.
Final Paycheck Laws in Pennsylvania
When a business parts ways with an employee, it’s very important that their final paycheck is paid in a timely manner. Pennsylvania law requires that final paychecks be paid on the next scheduled payday, regardless of whether the employee quit or was terminated. The final paycheck should contain the employee’s regular wages from the most recent pay period, plus other types of compensation due to them (commissions, bonuses, and accrued sick/vacation pay).
Employers are legally allowed to withhold money from the employee’s last paycheck if the employee owes your organization. This could be the result of things like unpaid loans from the company, money for uniforms that were never paid, or even unauthorized expenses on a company card.
Tip: While it’s not required legally, it’s a good idea to be sure that any deductions from final paychecks are documented. Take note of the amount deducted and what it was for so that it’s easily available if needed.
Severance Pay in Pennsylvania
As a Pennsylvania employer, you don’t have to provide your employees with severance pay if they are terminated or voluntarily leave.
Pennsylvania law will only enforce that you pay severance payments to your employees if there is a signed written agreement in place between an organization and an employee.
Accrued Paid Time Off Payouts
There is no regulation in place requiring accrued vacation payouts. Both Pennsylvania and federal law leave it up to employers to decide.
Similar to Severance Pay, an employer is only required to pay accrued vacation upon separation if it is included in a previously signed employment contract or policy.
While it’s not legally required, accrued PTO payouts can be an attractive benefit for competitive talent. If you want to learn more about how to calculate vacation accruals, check out our free PTO calculator.
Pennsylvania HR Laws that Affect Payroll
Although Pennsylvania does have many HR laws in place, the majority of them align with federal HR laws. You’ll want to pay extra close attention to required breaks and work permits for minors.
Pennsylvania New Hire Reporting
As a Pennsylvania employer, you will have to report all employees who reside or work in Pennsylvania to the Pennsylvania Department of Labor and Industry. All new employees need to be reported within 20 days of their hire date. The Pennsylvania CareerLink website gives employers a few ways to report, including:
- Enter Manually: Use a web form to enter new hires one at a time (best for 10 or fewer)
- Upload a File: Copy your data into a template to upload at once (best for 10 or more)
- Secure File-Transfer: Use a web portal to send a file to their server (best for large companies to automate reporting)
Breaks, Meals, and Paid Leave
Pennsylvania’s break laws are all based on age. As a PA employer, you are required to provide a 30-minute break period to employees aged 14–17 who work five or more consecutive hours. Employers are not required to provide breaks to employees 18 and over.
While not required, it is of course at the discretion of the employer if they would like to provide breaks to their employees. It’s important to know that if you do decide to provide breaks, there are regulations about pay. If the break provided is less than 20 minutes, an employee must still be paid for that time. However, if the break is more than 20 minutes and the employee is not working during the break, it does not have to be paid.
Child Labor Laws
The Pennsylvania Child Labor Law (CLL) was put in place to help protect children under the age of 18 and provide a safe and healthy work environment. The CLL prohibits children from working in certain establishments and occupations and also regulates the number of hours that they can work.
- Minors under the age of 18 are also required to obtain a work permit before they are able to seek employment.
- Minors under the age of 16 must also submit a written statement from their parent or legal guardian acknowledging and granting permission for the nature of the work and the hours of employment.
Work Permits for Minors
Employment Certificates, also known as Work Permits, are mandatory in Pennsylvania for minors under 18. The certificate has to be obtained by the minor and given to their employer to verify their ability to work before they are able to be hired. In Pennsylvania, minors can apply for a Work Permit of Employment Certificate through the public school in their district.
It is vital that if you intend to hire a minor you follow these regulations and ensure that you obtain a copy of their work permit before hiring. Failure to do so can result in fines and penalties against your business.
The only state-specific payroll forms you’ll need to worry about as an employer in the state of Pennsylvania is for UC. Otherwise, you’ll just use federal payroll forms.
Pennsylvania W-4 Form
Pennsylvania does not have a statewide withholding document like the federal W-4 form. Since Personal Income Tax is based on a flat tax rate of 3.07% in Pennsylvania, there is no need for separate state documentation.
Pennsylvania Unemployment Tax Forms
The Department of Labor and Industry requires employers to electronically file UC wage and tax information. The most frequently used include:
- Form UC-2 Employer’s Report for Unemployment Compensation: This form is used to report an employer’s quarterly gross and taxable wages, and UC contributions due.
- Form UC-2A Employer’s Quarterly Report Of Wages Paid To Each Employee: This form is used to list employees’ Social Security numbers, names, gross wages earned, and credit weeks for a particular quarter.
- Form UC-2B Employer’s Report of Employment and Business Changes: This form is used to report any recent change in name, mailing address, or business location. It is also used to report that an employer no longer has employees or that a business has been sold or discontinued.
- Form UC-2X Pennsylvania UC Correction Report: This form is used to make changes to the gross and/or taxable wages previously reported.
Federal Payroll Forms
- Form W-4: To help employers calculate taxes to withhold from employee paychecks
- Form W-2: To report total annual wages earned (one per employee)
- Form W-3: To report total wages and taxes for all employees to the IRS (summary of W-2s)
- Form 940: To report and calculate unemployment taxes due to the IRS
- Form 941: To file quarterly income and FICA taxes withheld from paychecks
- Form 944: To report annual income and FICA taxes withheld from paychecks
- 1099 Forms: To provide non-employee pay information that helps the IRS collect taxes on contract work
Resources and Sources
- Pennsylvania Department of Revenue: Find links to COVID-19 resources, e-file your state taxes, and learn about how property tax and rent rebate programs can help you with your cash flow.
- Pennsylvania CareerLink: Find hiring resources for your business, learn about disability service partnerships, and report new hires.
- Pennsylvania Office of Unemployment Compensation: Register for a UC Tax Account Number and Appeal a UC Contribution Rate directly from Pennsylvania’s Office of Unemployment Compensation website. It also provides employers with state-specific information about audits, appeals, common paymasters, and more. There is an employer quick guide with contact information for each department that employers can use to call for guidance on everything from registrations to tax filings to labor law posters.
Also, check with your payroll software or service for resources and state-specific features.
While processing payroll in Pennsylvania is pretty simple overall, it’s still important to remember that what does make Pennsylvania a bit more complicated is taxes. Though many of its labor laws align with federal guidelines, there are quite a few that are unique to Pennsylvania. With state income tax, earned income tax, and local/city taxes, you will want to make sure that you are diligent with your payroll to avoid penalties.