Learning how to do payroll in Vermont is fairly straightforward; the hardest part would probably be calculating Vermont’s payroll taxes because of its progressive tax system. Otherwise, the state generally follows federal guidelines.
Paying employees in multiple states? Streamline the entire process with Paychex |
|
Key Takeaways:
- Vermont’s minimum wage increases to $13.67 on Jan. 1, 2024
- Vermont has a progressive income tax, so you’ll need to pay attention to your employee’s earnings to ensure you’re withholding the correct amount
- Vermont does not require many types of leave but does have a family leave law
Step-by-Step Guide to Running Payroll in Vermont
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 Vermont. If your business is new, you need to register on the Vermont Secretary of State’s website. Any company that pays employees in Vermont must also register with the Vermont Department of Taxes.
Step 3: Create your payroll process. Your payroll process begins by figuring out how to pay your employees and when. An already established business probably has a process that you inherit—but it may need to be altered to better fit your needs. You’ll also need to decide when to collect and submit employee payroll forms and how early you need to begin processing payroll before payday.
Step 4: Collect employee payroll forms. Your business must have every employee complete payroll forms during their onboarding process. Every employee must complete I-9 verification. New employees must also have a completed W-4 on file plus a direct deposit authorization form if it applies. Vermont employees must fill out a Form W-4VT.
Step 5: Collect, review, and approve time sheets. To run payroll accurately, you need to collect time sheets several days in advance. Reviewing the time sheets from your nonexempt employees gives you time to speak with anyone who might have made mistakes. There are many ways to track employee time—some of which are free.
Step 6: Calculate employee gross pay and taxes. Calculating payroll by hand is not recommended. Tax calculations can become complex, and even innocent mistakes can cause costly fines and penalties. You can set up an Excel payroll template, use a calculator (our free time card calculator can perform basic time calculations), and/or sign up for a payroll service to help you handle your Vermont payroll.
Step 7: Pay employee wages, benefits, and taxes. The best way to pay your employees is through direct deposit. But cash and paper checks are also options for small businesses. Vermont has a state minimum wage of $13.18 per hour, higher than the federal minimum wage of $7.25 per hour. On Jan. 1, 2024, the Vermont minimum wage is set to increase to $13.67 per hour. You can pay your federal and Vermont 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. Vermont requires businesses to keep record of all hours worked and wages paid to each employee for at least two years. The Fair Labor Standards Act (FLSA) requires businesses to keep payroll records for at least three years—we recommend complying with the strictest rules. Payroll tax records should be kept for a minimum of four years (federal law).
Step 9: File payroll taxes with the federal and state government. All Vermont state taxes need to be paid to the applicable state agency on the schedule provided, usually quarterly, which you can do online at the Vermont Department of Taxes 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. You’ll also need to send copies of each to the IRS, along with a separate form that summarizes the total detail on each.
Download our free checklist to help you stay on track while you’re working through these steps:
Thank you for downloading!
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.
Vermont Payroll Laws, Taxes & Regulations
Running payroll in the state requires more than just paying employees for the hours they worked—it also includes calculating Vermont payroll taxes and ensuring compliance with all federal and state employment laws. To help you maintain compliance with payroll regulations, review Vermont’s relevant 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.
Vermont Taxes
Like most states, Vermont has certain taxes that companies must pay and withhold from employees’ paychecks. Vermont does not levy local taxes on employees.
Income Taxes
Vermont has a progressive income tax system. Taxes are levied at four different levels (from 3.35% to 8.75%) and the income amounts vary based on the type of filing by the employee. If you’re doing payroll by hand and need to calculate how much you must withhold for each employee, you can use the State of Vermont’s withholding tax guide.
Employer Unemployment Taxes
All businesses in Vermont must pay State Unemployment Tax Act (SUTA) taxes. The current wage base is $13,500 and rates range from 0.4% to 8.4%. The wage base is set to increase on Jan. 1, 2024, to $14,300. Most new employers in Vermont will pay a SUTA rate of 1%. 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
Vermont requires every employer with one 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. You can choose to purchase pay-as-you-go insurance in which providers calculate your workers’ comp due based on your current payroll amounts; this helps ensure you don’t have to play catchup at the end of the year.
To learn more about workers’ compensation in Vermont, check out Vermont’s Department of Labor website.
Vermont Minimum Wage
Vermont has a higher minimum wage than the federal mandate of $7.25 per hour—it requires all businesses with at least two employees to pay workers at least $13.18 per hour. The Vermont minimum wage will increase to $13.67 on Jan. 1, 2024. For tipped employees, companies must pay at least $6.59 per hour, provided that their tips get them to the hourly minimum wage. If not, the company must make up the difference. On Jan. 1, 2024, this amount will also increase to $6.84 per hour since Vermont law requires tipped workers to have a base pay that is at least half of the current state minimum wage.
Calculating Overtime
Vermont overtime rules follow FLSA 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
Vermont law requires you to pay employees every week, within six days of the last pay period. However, you can switch to every other week or twice monthly if you provide employees with written notice. If your business pays less frequently than once per week, a good practice is to include this notice in your company handbook so all new employees see the pay schedule. All wages, regardless of pay schedule, must be paid within six days of the end of the pay period.
Vermont also allows you to pay workers by one of the following methods:
- Cash
- Paper check
- Direct deposit, only if authorized by the employee in writing
- Payroll card, only if authorized by the employee in writing
If you need help keeping track of your payroll periods, use one of our free pay period calendars.
Pay Stub Laws
In Vermont, you must provide employees with written or printed pay stubs, unless they agree in writing to receive them electronically. We recommend adding this agreement to your new hire paperwork if you plan to provide electronic pay statements. It’s also a good practice to keep a copy for yourself.
Vermont law mandates that all businesses keep employee records for at least two years. If an employee is terminated, the employer must keep their records for at least three years beyond the termination date. The records for both instances must include the hours worked and wages paid for each pay period.
If you do not use a payroll service, download one of our free pay stub templates to help you create your own.
Vermont Paycheck Deductions
According to the Vermont Department of Labor, companies may only deduct wages from an employee’s paycheck for the following reasons:
- Authorized by law
- Authorized by the employee in writing for retirement and health plan contributions
- An allowance for meals and lodging
- Goods or services provided by the employer to the employee, provided that all of the following conditions are met:
- The deduction does not reduce the employee’s wages below the Vermont minimum wage
- The employee gives written authorization
- The deduction is lawful
Vermont specifically forbids employers from deducting wages for cash shortages or damage or destruction of the company’s property.
Terminated Employees’ Final Paychecks
Vermont law mandates that employers pay an employee their final paycheck within 72 hours if the company has fired, discharged, terminated, or laid off the employee. The same law states that an employee who quits or resigns must receive the final paycheck on the next regular payday.
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.
Vermont HR Laws That Affect Payroll
Vermont has a few state-specific HR laws that you need to know. The state mostly follows federal guidelines, so if you are familiar with those, you should have no issues understanding the additional Vermont HR laws.
Vermont New Hire Reporting
Every employer in Vermont must report new hires and any rehired employees to the Vermont Department of Labor within 10 days of their first day on the job. This report is used to enforce child support orders and must include the employee’s name, address, and Social Security number.
Meals & Breaks
Vermont law requires employers to provide employees with a “reasonable opportunity” to eat and use facilities. Breaks of less than 20 minutes must be paid, but breaks or meal periods over 30 minutes generally do not need to be paid.
Vermont Child Labor Laws
Similar to federal laws, Vermont does not restrict the working hours or days of children aged 16 and 17. However, minors under age 16 who wish to work must get an Employment Certificate.
These working children must not work more than three hours per school day and 18 hours per school week, and any times before 7 a.m. and after 7 p.m. are off limits. They cannot work more than eight hours per non-school day and more than 40 hours per non-school week.
Regardless of whether school is in session, children aged 14 and 15 cannot work more than six days per week.
Check out our guide to hiring minors for more insight into federal child labor laws.
Time Off & Leave Requirements
There aren’t many time off requirements in Vermont, aside from a family and medical leave law and a paid sick leave regulation you must comply with. Most of the other decisions regarding leave, i.e., holiday, jury duty, bereavement, etc., are up to your discretion as long as you are complying with any policies you have set.
Click through the tabs below to learn more about Vermont’s requirements:
Payroll Forms
Vermont has only one payroll form, Form W-4VT. This is the state version of the federal W-4.
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 non-employee contract work
For a more detailed discussion of federal forms, check out our guide on the federal payroll forms you may need.
Vermont Payroll Tax Resources
- Vermont Department of Taxes provides many forms, information on the latest laws and regulations, and other employer-specific information.
- Vermont Department of State Business Services Division has many great resources for new and existing businesses to help them navigate licensing, taxes, and employer requirements.
- Vermont Department of Labor offers support and resources to help businesses ensure compliance with unemployment and workers’ compensation, plus other labor laws.
Bottom Line
Vermont has a progressive state income tax but no local taxes. It has only one state-specific payroll form and generally follows federal guidelines for employment laws. While it’s not the easiest state in which to run payroll, it is by no means the most difficult.
Other State Payroll Guides
Need to know how to pay employees in another state? Click on the state in our interactive map below to learn more.
