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Human Resources | How To

Payroll for Remote Employees: Everything US Employers Need to Know

Charlette Beasley

REVIEWED BY: Charlette Beasley

Charlette has over 10 years of experience in accounting and finance and 2 years of partnering with HR leaders on freelance projects. She uses this extensive experience to answer your questions about payroll.

 

WRITTEN BY: Heather Landau

Published July 30, 2021

Heather is a staff writer and payroll specialist with several years of experience working directly with small business owners. Her expertise allows her to deliver the best answers to your questions about payroll.

Published July 30, 2021

This article is part of a larger series on How to Do Payroll.

Table of Contents
  1. 1 Taxes for Remote Workers
  2. 2 Employee Withholdings & Employer Taxes
  3. 3 Understanding State Requirements
  4. 4 How to Pay Remote Workers
  5. 5 Bottom Line

Hiring remote employees has become more prevalent in the business world as a result of COVID-19, and small businesses are moving toward more cloud-based business management solutions. When you pay remote employees, you are responsible for registering as a business and filing taxes in their respective states.

If you would prefer to not have to worry about understanding tax obligations for remote employees, consider using a payroll provider like Gusto. Its system will use each employee’s address to determine all employer accounts needed and complete all filings and payments on your behalf. Try it free for 30 days.

Visit Gusto

Taxes for Remote Workers

When hiring remote employees, the most frequently asked questions for employers is often regarding taxes. As an employer that’s interested in hiring remote or off-site employees, it’s important to first understand what your obligations will be to remain in compliance.

Generally, an employee’s wages are taxed on a state level in the state in which the work is performed. For remote or work-from-home employees, that means that they are required to pay state tax in the state that they reside in.

State Income Tax (SIT)

Remote employees that live in a state that has state income tax are required to have SIT deducted from their wages and remitted to their home state. While not all states have income tax, for those that do, it is the employer’s responsibility to have these taxes deducted correctly and have the funds paid to the state agencies in a timely manner.

In order for the employer to be able to withhold taxes in an employee’s home state, they’ll need to make sure that they have followed the proper procedures to register within that state.

Tip: Keep in mind that whether your employees report in person each day or are completely remote, as the employer, you will still be required to withhold and remit federal income tax, and FICA (Social Security and Medicare) on their behalf, as well.

Local Income Tax (LIT)

In addition to state income tax (SIT), some states, such as Pennsylvania, also have local taxes that residents are required to pay. If your remote employees live in local jurisdictions that require them to pay local taxes, you will be required to deduct and remit those on their behalf as well.

In addition to federal tax liabilities such as FICA and Federal Unemployment Tax (FUTA), there are also state obligations that employers must follow for remote employees.

State Unemployment Tax (SUTA)

States have the responsibility of paying unemployment benefits to eligible workers who are involuntarily terminated. To fund these programs, states impose unemployment tax on employers. State unemployment needs to be paid to the state that your employees live in, but before being able to withhold and pay SUTA, you’ll need to sign up for an account with that state’s applicable agency.

While most payroll software will complete all filings and payments on your behalf, as the employer, you will generally still be responsible for registering with the respective state agencies. If you’d prefer that to be handled for you, consider checking out our guide to PEOs.


Understanding State Requirements

In addition to taxes, many states have their own laws regarding other aspects of payroll. While some follow federal regulations, a majority of the states in the US have set forth their own regulations that pertain to employees that reside there.

Some regulations that may differ state to state are:

  • State Minimum Wage
  • Final Paycheck Laws
  • Overtime Regulations
  • Pay Stub Laws

Our state payroll guides walk employers through everything they need to know—from tax procedures to pay stub laws—in order to run payroll within the respective state. Use the drop-down below to check out our state guides. (If you’re state is missing, check back, we release new state guides weekly).

How to Pay Remote Workers

When doing payroll for remote employees, you have to consider which payment methods are the best options. With employees that are not physically coming to a place of work, and are oftentimes not in the same state, it’s important to be sure that your employees can be paid without the need of a physical paycheck.

Some of the best options for issuing payments to your remote employees include:

  • Direct deposits: Often the most common and convenient way to pay any employees, direct deposit is a great option for paying remote staff. Funds will be directly transferred from the company bank account to the employees and requires no physical checks to be given to your employees. Most payroll software offer next-day or even same-day funding, allowing employers to process payroll for their team with a quick turnaround.
  • Payroll cards: This is another great option to avoid writing physical checks to your employees. Payroll cards are prepaid debit cards that employers can use to pay employees who don’t have bank accounts. While you will need to get the pay card in their possession (some providers give you a stock to keep on hand to issue, and others mail a new card directly to each employee), once they have it, this can be a great way to issue digital payments to remote employees.

If you want to learn more, check out our guide to the best payroll card providers. It breaks down everything you’ll need to know, from the setup process to cost and features.

  • Online payment processors: If direct deposit and pay cards are not an option that works for your remote employees, you can also consider an online payment processor like PayPal or Venmo. Keep in mind that most payroll providers are able to send direct deposits and funds to pay cards directly, meaning that all payroll taxes and deductions are handled. If you choose to pay your team via an online processor, it is just a method of moving funds and you will need to make all deductions beforehand.

Interested in hiring International remote employees and want more information? Check out our guide to International Payroll.

Bottom Line

Remote employment has become more prevalent in the business world as a result of COVID-19 and with the popularity of cloud-based business solutions. With remote employment on the rise, it’s important that small business owners know their role and what’s required of them to remain in payroll compliance. Processing payroll for remote employees can be complicated, but using our state guides to understand your obligations on a state-by-state basis will make the process much easier.

Payroll providers like Gusto can make processing payroll for remote employees much easier. Its system will use each employee’s address to determine all employer accounts needed and complete all filings and payments on your behalf. Try it free for 30 days.

Visit Gusto

About the Authors

Charlette Beasley

Find Charlette OnLinkedIn

Charlette Beasley

Charlette Beasley is a writer and editor at Fit Small Business focusing on payroll. With more than a decade of accounting and finance experience, Charlette has worked side-by-side with HR and accounting leaders to establish and help implement payroll best practices, controls, and systems. Her experience ranges among small, mid-sized, and large businesses in industries like banking and marketing to manufacturing and nonprofit.

Heather Landau
Heather Landau

Heather Landau is a staff writer at Fit Small Business, specializing in all things payroll. Throughout her career, she has worked to help hundreds of small business owners in managing many aspects of their business, from bookkeeping to accounting to HR. Before joining FSB, Heather was the Payroll/HRS Manager for a top cloud accounting firm in the industry.

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