Learning how to do payroll in Tennessee is pretty simple since there are no state-specific regulations. Tennessee also does not have income taxes or any local taxes, and in turn, no state W-4 tax withholding form for you to process.
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Key Takeaways:
- The state follows the federal minimum wage of $7.25 per hour.
- It does not levy personal income tax.
- Tennessee allows paid family leave at the discretion of employers through private insurance.
Step-by-Step Guide to Running Payroll in Tennessee
Tennessee follows federal guidelines for payroll, making the process straightforward—you won’t have to juggle between federal and state rules to ensure your business is in compliance. Most small business owners find that calculating payroll taxes is the most challenging, especially attempting it by hand. However, with QuickBooks Payroll, this calculation is done for you. Read our QuickBooks Payroll review to know more about its features.
Here is a basic guide to running payroll in Tennessee:
Step 1: Set up your business as an employer. New companies may need to access the federal Electronic Federal Tax Payment System (EFTPS) to create a new Federal Employer Identification Number (FEIN). Your FEIN is required to pay federal taxes.
Step 2: Register with the State of Tennessee. If your business is new, you must register on the Tennessee Secretary of State’s website. Any company that pays employees in Tennessee must also register with the Tennessee Department of Revenue.
Step 3: Set up your payroll process. Establishing a standard payroll process starts with determining how and when employees are paid. A business that is already established probably has a process that you inherit, but it may need to be altered to better fit your needs. You can opt to process payroll by hand (you’ll need to learn the steps and laws inside and out), set up an Excel payroll template, or sign up for a payroll service to help you handle your Tennessee payroll.
Step 4: Collect employee payroll forms. Every company that hires employees in Tennessee must collect certain forms during the onboarding process. Each employee must complete I-9 verification. New employees must also have a completed W-4 form on file. There is no state W-4 since Tennessee does not have a state income tax.
Step 5: Collect, review, and approve time sheets. To ensure smooth payroll processing, you’ll need a way to track employee time—many small business owners create their own time sheets or start with time and attendance software. If you have hourly or nonexempt employees, you must be diligent about collecting time records at least a few days before payroll is due. Reviewing the time sheets gives you time to speak with anyone who might have made mistakes.
Step 6: Calculate employee gross pay and taxes. To do payroll in Tennessee, you must make numerous payroll calculations, including total hours worked (you can use our free time card calculator), gross pay, payroll deductions and tax withholdings, benefit premiums, etc.
Step 7: Pay employee wages, benefits, and taxes. Most companies today pay all employees through direct deposit. However, cash (there is a legal way to do it) and paper checks are also options. Tennessee does not have a state minimum wage, so the federal minimum wage of $7.25 per hour applies. You can pay your federal and Tennessee state taxes online. If you use a benefits provider, it should work with you to make deductions simple, automatic, and electronic.
Step 8: Document and store your payroll records. Keeping your company business records is good practice. Tennessee does not require that your business keep any employment documents. The Fair Labor Standards Act (FLSA), however, does require businesses to keep certain records for at least three years. Learn more about what to keep in our guide to payroll records.
Step 9: File payroll taxes with the federal and state government. All Tennessee state taxes must be paid to the applicable state agency on the schedule provided, usually quarterly, which you can do online at the Tennessee Department of Revenue website. To pay federal taxes, you can make those payments online using the EFTPS on one of the following two schedules:
- Monthly: When the IRS assigns you a monthly schedule, you must deposit employment taxes on payments made during a calendar month by the 15th of the following month.
- Semiweekly: When the IRS assigns you a semiweekly schedule, you must deposit employment taxes for payments made Wednesday, Thursday, and Friday by the following Wednesday, and for payments made Saturday, Sunday, Monday, and Tuesday, by the following Friday.
Please note that reporting schedules and depositing employment taxes are different. Regardless of the payment schedule you are on, you only report taxes quarterly on Form 941 or annually on Form 944.
Step 10: Do year-end payroll tax reports. Every year, you will need to complete payroll reports, including all W-2 Forms and 1099 Forms. You must provide these forms to employees no later than Jan. 31 of the following year.
Here’s a free checklist to help you process your Tennessee payroll.
Learn more about doing payroll yourself in our guide on how to do payroll. It has a free checklist you can download to make sure you don’t miss any steps.
Tennessee Payroll Laws, Taxes & Regulations
Calculating Tennessee payroll taxes and ensuring compliance with all federal and state employment laws are crucial to ensure a correct payroll on every occasion. To help you maintain compliance with payroll regulations, review information on Tennessee payroll laws, taxes, and regulations below.
With few exceptions, most employers in the US must pay Federal Insurance Contributions Act (FICA) taxes. The current FICA tax rate for Social Security is 6.2% and 1.45% for Medicare. Both the employer and the employee will pay these taxes, each paying 7.65% for the combined Social Security and Medicare taxes.
Tennessee Taxes
Like most states, Tennessee has certain taxes that companies must pay. Tennessee does not, however, levy local taxes or a state income tax on employees.
Employer Unemployment Taxes
All businesses in Tennessee must pay State Unemployment Tax Act (SUTA) taxes. The current wage base is $7,000, and rates range from 0.01% to 10.0%. All new employers in Tennessee will pay a SUTA rate of 2.7%. Businesses that pay SUTA in full and on time can claim a tax credit of up to 5.4% on their Federal Unemployment Tax Act (FUTA) taxes.
To learn more about FUTA requirements, check out our guide on FUTA and Form 940.
Workers’ Compensation
Tennessee requires every employer with five or more employees to carry workers’ compensation insurance. Workers’ compensation insurance provides benefits to employees who suffer on-the-job injuries and covers the cost of medical treatment and lost wages. Payments start on the fourth day of disability.
Income Taxes
Tennessee does not have a state income tax.
Tennessee Minimum Wage
Tennessee does not have a state minimum wage, so the federal minimum wage of $7.25 is the default. Businesses must pay tipped employees at least $2.13 per hour, provided that their tips get them to the hourly minimum wage. If not, the company must make up the difference.
Calculating Overtime
Tennessee overtime rules follow the Fair Labor Standards Act requirements. Under the FLSA, all employers must pay employees 1.5 times their regular hourly wage for hours worked over 40 in a workweek.
Paying Employees
Tennessee law requires businesses with five or more employees to pay their workers at least once per month. Employers must also establish and stick to regular paydays. If a company pays workers just once per month, they must pay employees by the fifth day of the following month. When a company pays employees twice per month, Tennessee mandates that companies pay as follows:
- All wages earned before the first day of any month must be paid to employees no later than the 20th day of the following month
- All wages earned before the 16th day of any month must be paid to employees no later than the fifth day of the following month
Companies may choose to pay employees more than twice per month. If they do, they must establish regular paydays and must provide notice of any changes.
Tennessee also allows employers to pay workers by one of the following methods:
If you need help keeping track of your payroll periods, use one of our free pay period calendars.
Pay Stub Laws
Tennessee has no law requiring employers to provide a pay stub to their employees. Doing so, however, is a good business practice. We recommend including information like your employee’s name, pay rate, pay period covered, pay date, etc.
If you do not use a payroll service, download one of our free pay stub templates to help you get started.
Paycheck Deductions
According to the Tennessee Department of Labor & Workforce Development, businesses can only deduct wages from an employee’s paycheck if the employee has provided written consent. So, if you need to deduct any of the following from an employee’s pay, you must first get written consent from that employee:
- Cash shortages
- Broken, damaged, or stolen company property
- Returned checks
- Required uniforms or tools
Please note that, according to the Department of Labor, a company cannot make deductions to an employee’s pay if those deductions would cause the employee to earn less than the federal minimum wage ($7.25 per hour) for that pay period.
Terminated Employees’ Final Paychecks
When an employee exits the company, Tennessee law mandates that the employee be paid their last paycheck no later than the next regular payday or 21 days after their final workday, whichever occurs last.
If you need to pay an employee right away and aren’t currently using a service, use one of our recommended ways to print a free payroll check.
Tennessee HR Laws That Affect Payroll
Tennessee does not have many state-specific HR laws. You must ensure that you are following the federal guidelines, which Tennessee law mostly follows.
New Hire Reporting
Every employer in Tennessee must report new hires and any rehired employees to the Tennessee Department of Labor & Workforce Development within 20 days of their hire date. This report is used to enforce child support orders and must include the employee’s name, address, and Social Security number.
Meals & Breaks Requirements
You must give 30-minute unpaid breaks to employees scheduled to work six or more consecutive hours. This law does not apply to workplaces where the nature of the business provides an ample opportunity for workers to rest. Meal breaks are not required under Tennessee law, but if an employer does provide a meal break, it must be more than 20 minutes and does not have to be paid. Breaks of less than 20 minutes generally need to be paid breaks.
Child Labor Laws
Children can begin working at age 14. For 14- and 15-year-old workers, they can only work three hours per school day and 18 hours per school week. When school is not in session, 14- and 15-year-olds can work up to eight hours per day and up to 40 hours per week. There is no restriction on children 16 years or older.
Check out our guide to hiring minors for more insight.
Time Off & Leave Requirements
Tennessee does not have many state-specific time off and leave requirements. Employers must accommodate voting and jury duty, and those of a certain size must provide maternity leave.
Family Leave
Tennessee follows the Family and Medical Leave Act (FMLA), which requires that all eligible employers provide up to 12 weeks of unpaid leave for employees who fall under a covered disability. Pregnancy and taking care of a sick family member are examples. The FMLA doesn’t mandate that employers pay employees during this time away from work, but it does require that employers provide the employee with the same or a similar job once they return to work. Tennessee does not provide for any additional family leave under state law.
Tennessee does, however, require employers with at least 100 employees to provide maternity leave. An employee who cannot work because of pregnancy, childbirth, or a related condition may take unpaid leave for up to four months, provided the employee has worked for the company full time for at least 12 consecutive months. The employer must keep the employee’s position or similar position available for them upon their return.
Tennessee allows employers the option of obtaining paid family leave insurance through private insurance companies. This is not a requirement, but if an employer decides to sign up, an eligible employee may be able to take paid leave to cover the birth of their child, care for a family member, or other covered issues.
Paid Time Off
Tennessee has no laws requiring employers to provide employees with paid time off (PTO). Companies in Tennessee are free to create PTO policies, including whether to pay out accrued and unused PTO when employees leave. Tennessee does not require that companies do, so it’s a good practice to have this clearly defined in your company policy. The important thing is to follow the guidelines in your policy, or you can be held liable.
If you offer PTO and need help to calculate employees’ PTO accrual, use our free PTO calculator.
Holiday Leave
In Tennessee, private companies are not required to pay employees for holidays or pay them a higher rate for working a holiday. Companies may choose to pay higher rates for holiday workers or require workers to work holidays, provided they adhere to the FLSA.
Paid Sick Leave
There is no law requiring Tennessee employers to offer paid or unpaid sick leave to their employees. Employers are free to create a sick leave policy, provided that they adhere to FMLA guidelines.
Voting Leave
Tennessee requires all employers to give workers a reasonable amount of paid time off to vote. The PTO given does not need to exceed three hours and an employee must meet the following conditions to be eligible:
- The employee requesting leave to vote must not have three or more hours before or after their shift begins or ends to vote when the polls are open.
- The employee must request the paid voting leave no later than noon on the day before their requested leave.
Jury Duty Leave
An employer with five or more employees must pay employees who are summoned for jury duty, less any amount paid by the court to the employee. The only exception to this law is if an employee has worked on a temporary basis for an employer for less than six months. You cannot discharge or discriminate against any employee summoned for jury duty.
Bereavement Leave
Businesses in Tennessee do not have to provide employees with bereavement leave. Employers are free to create policies if they choose.
Veterans Day Leave
Tennessee law requires every private employer with at least one employee in Tennessee to provide unpaid leave to any veteran employee on Veterans’ Day. Employers may require such employees to provide at least one month’s written notice that they intend to take leave on Veterans’ Day and must provide proof of their veteran status.
Payroll Forms
Tennessee does not have state payroll forms since the state does not levy income taxes.
Federal Payroll Forms
Here is a complete list and location of all the federal payroll forms you should need.
- W-4 Form: Provides information on employee withholdings so you can properly calculate and withhold federal and state income taxes
- W-2 Form: Used to report total annual wages for each employee
- W-3 Form: Used to report total annual wages for all employees; summary form of W2
- Form 940: To calculate and report unemployment taxes due to the IRS
- Form 941: Used to file quarterly income tax
- Form 944: Used to file annual income tax
- 1099 Forms: Provides information for nonemployee contract work
For a more detailed discussion of federal forms, check out our guide on the federal payroll forms you may need.
State Payroll Tax Resources
- Tennessee Department of Revenue provides many forms, information on the latest laws and regulations, and other employer-specific information.
- Tennessee Department of State Online Business Services has many great resources for new and existing businesses to help them navigate licensing, taxes, and employer requirements.
- Tennessee Department of Labor offers support and resources to help businesses ensure compliance with unemployment and workers’ compensation, plus other labor laws.
Frequently Asked Questions (FAQs)
If your business is located in Memphis and you have an employee who commutes from Arkansas, they’ll probably need to pay Arkansas state income taxes. You’ll be responsible for withholding the appropriate amounts.
“Right-to-work” simply means that employees can’t be compelled to join a union or pay union dues. In the 26 states (and Guam) that have right-to-work laws on the books, employers aren’t allowed to deduct union dues from paychecks for nonmember employees, even if they benefit from the union’s collective bargaining agreements. This could impact your business if you operate in an industry where unions are common, potentially shaping your payroll processes and employee handbook policies.
Right-to-work laws are sometimes confused with at-will employment laws, which pertain to hiring and termination procedures.
Yes, as of Jan. 1, 2023, all employers in Tennessee with at least 35 full-time employees must use the E-Verify system to verify an employee’s work status. You must still use Form I-9 as well. We recommend all employers use E-Verify as a safeguard.
Bottom Line
It is relatively painless to navigate Tennessee’s HR laws as they follow federal regulations. Tennessee has no state income tax and no state payroll forms, making it one of the easiest states to pay employees. Even though it’s straightforward, we still recommend using payroll software or our payroll checklist to reduce mistakes.
Other State Payroll Guides
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