How to Do Payroll in Tennessee: What Every Employer Needs to Know
This article is part of a larger series on How to Do Payroll.
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 return, no state W-4 tax withholding form for you to process.
QuickBooks Payroll is great for processing payments for all types of employees due to its versatility, ease of use, and wide variety of features. | ||
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Here’s a checklist to help you process your Tennessee payroll.
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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. Using QuickBooks Payroll, this calculation is done for you.
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 your business with the State of Tennessee. If your business is new, you need to 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: Create 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: Have employees fill out relevant 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 on file. There is no state W-4 since Tennessee does not have a state income tax.
Step 5: 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’ll need to 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’ll need to 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. But 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: Save 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.
Step 9: File payroll taxes with the federal and state government. All Tennessee state taxes need to 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 need to 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: Complete year-end payroll 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.
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.
Use our free calculators below to help you out:
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 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.
Use our free overtime calculator below to help:
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 pay days. 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 need to establish regular pay days 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.
Tennessee 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 quits, resigns, is terminated, or discharged, 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 need to ensure that you are following the federal guidelines, which Tennessee law mostly follows.
Tennessee 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
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 employee 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.
Tennessee 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.
Payroll Forms
Tennessee does not have state payroll forms since the state does not levy income taxes. You should familiarize yourself with federal forms though.
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.
Tennessee 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.
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 to reduce mistakes and increase efficiency. Check out QuickBooks Payroll today for a free trial.
