The Complete Guide To New York State Payroll

There is a lot to keep track of on a daily basis when running a small business: inventory, customer satisfaction, employee performance, and much more. Additionally, there are periodic obligations you have to stay on top of, such as taxes and payroll. You can’t let those things slip, unless you want to be in deep water, both legally and financially.

The more complex details of payroll and payroll taxes can be time-consuming and confusing, but they are absolutely essential for avoiding legal issues and penalties. We know small businesses have plenty on their plate already, so in this article we’ve broken down all the steps involved in doing payroll in New York State — and the key regulations to be aware of.

Ready to learn how to do payroll in New York? Read on!

State Of New York Payroll Laws & Regulations

New York has its own laws and regulations that small businesses must comply with, in addition to federal guidelines.

New York Payroll Taxes

There are several payroll taxes to familiarize yourself with as a small business in New York State. Let’s take a look at some common taxes:

• Income Taxes: New York utilizes a progressive income tax ranging from 4-8.82% according to an employee’s income. Additional commission or bonuses are withheld at a rate of 9.62%
• New York City Surcharge: Employees residing in New York City have 2.907% to 3.876% deducted from taxable wages.
• Yonkers Surcharge: Employees living in Yonkers pay a tax of 1.61135%, while nonresident employees working in Yonkers pay a tax of 0.5%.
• Property Taxes: These are determined by local governments and vary considerably by location. Such taxes are calculated by multiplying the assessed property value by the tax rate. They do not apply to payroll taxes.
• Sales Tax: Filing sales tax is done separately from payroll. Small businesses must file them monthly, quarterly, or annually.
• Use Tax: This involves taxes on property and services purchased out-of-state and delivered to a business in New York State. This is not factored into payroll taxes.

The taxes listed above are all in addition to federal taxes, and both must be taken out of a W2 employee’s check.

New York’s Tax Exclusions & Exemptions

New York tax law requires employers to withhold the amount estimated to be due from an employee’s gross income. This includes some specific exclusions and exemptions that may impact how you complete payroll.

Exclusions represent income that is not subject to taxes and counts separately from taxable income. Exclusions are different from deductions in that no cost incurred by the taxpayer is needed to qualify. Some exclusions relevant to small businesses include the following:

• Independent contractors
• Students enrolled in certain work-study programs
• A sole proprietor, their spouse or child under the age of 21
• Persons whose employment is subject to the Federal Railroad Unemployment Insurance Act
• Freelance reporters under certain conditions
• Licensed insurance agents or brokers under certain conditions

Meanwhile, exemptions apply to employees who do not have certain taxes withheld in their paycheck. Here are some scenarios that can involve an exemption:

• Employees under age 18 or over age 65, and full-time students under age 25, who had no New York income tax liability in their previous taxable year and expect none in the current year.
• Military spouses are exempt from New York State income tax under the servicemembers Civil Relief Act and Veterans Benefits and Transition Act.
• If your business is a participant in the START-UP NY program and operates in a tax-free area, some or all of your employees’ wages may be exempt from New York State, NYC, and Yonkers income tax withholdings.

New York’s Minimum Wage

New York’s minimum wage is higher than the federal rate of $7.25 per hour. In recent years, there have been annual changes and variations to New York’s minimum wage based on location and type of business. For instance, the minimum wage rate for businesses in New York City with fewer than 11 employees jumped from $13.50 to $15 at the end of 2019. Let’s take a look at what businesses across the state need to pay their employees moving forward.

Since 12/31/19:

• New York City: $15
• Long Island & Westchester: $13
• Other New York Counties: $11.80

After 12/31/20:

• New York City: $15
• Long Island & Westchester: $14
• Other New York Counties: $12.50

After 12/31/21:

• New York City: $15
• Long Island $ Westchester: $15
• Other New York Counties: TBA on October 1, 2020

Additionally, the minimum wage for fast-food workers follows its own schedule for rate increases. As of 2020, New York City has a rate of $15, whereas fast-food restaurants in the remainder of the state must pay $13.75. This will increase to $14.50 on December 31, 2020 and again to $15 on July 1, 2021.

There are exceptions for tipped workers that vary by industry and location too. By 2021, only employers in hospitality, agriculture, and building service will be eligible to utilize tip allowances in combination with wages to achieve the minimum wage rate. Furthermore, employers may not keep tips received by their employees.

Here is the breakdown for what portion of minimum wage must be paid as wages versus tip credits:

Displaying a minimum wage poster at your business is another requirement for compliance with New York State laws. To help stay up-to-date on changes in regulation, obtaining a subscription for labor law posters can automatically provide new materials as needed.

There are other poster requirements based on industry. For example, foodservice businesses must include posters regarding deductions from wages and tip appropriation. Also, Public Works projects in New York State must have posters related to disability benefits, workers’ compensation, and other programs and policies.

Re-employment Tax

Small businesses are required to pay re-employment taxes each quarter on form NYS-45. This is calculated as 0.075% of total employee wages paid during that period.  Additionally, contributions to the New York Re-employment Service Fund cannot count as a credit against federal taxes.

Unemployment Insurance

New York State has a separate unemployment tax that businesses will likely have to pay. Any business that opened in 2020 will contribute a rate of 2.5%, while other employers’ rates will range between 0.525% and 7.825%. Employers can complete the registration process online.

New Hire Reporting

When you hire or re-hire an employee after a 60-day absence at your business, you are required to disclose certain information to them and the Department of Taxation and Finance within 20 days of the hiring date. The hiring date isn’t when you extend an offer to an employee; rather, it’s when they begin working for paid wages, tips, or commission. Employees must receive the following information as a written notice on the date they are hired:

1. Position pay rate
2. Overtime rate, if applicable
3. How they will be paid (e.g., per hour, shift, week)
4. Any amount employer intends to claim as part of minimum wage (e.g., tips, meals, lodging)
5. Pay schedule
6. Employer’s name and names under which business is done
7. Employer’s address and phone number

You’ll also need to report the following information to the Department of Taxation and Finance:

• Employee: Name, address, Social Security number, and hire date
• Employer: Name, address, IRS identification number, and health insurance benefits, including the date the employee qualifies for the benefits.

This can be submitted through New York State’s online portal or by mail. Failure to report a new hire can result in a $20 penalty for each employee not reported.

When hiring subcontractors, it’s important to double-check whether or not they are considered employees under New York State tax law. Subcontractors do not receive supervision, direction, or control in the performance of their duties from an employer. If any of those criteria apply to anyone working under you, they are likely considered an employee and should be reported as such.

New York State’s Human Rights Law protects employees from discrimination on the grounds of age, race, color, national origin, sexual orientation, gender identity or expression, military status, sex, disability, predisposing genetic characteristics, familial status, marital status, or status as a victim of domestic violence. Refusing to hire a candidate due to any of these characteristics violates equal opportunity hiring.

PTO Policy

Small businesses are not required to pay for time not worked in certain forms (holidays, personal leave, vacation) unless it is part of their benefits package. However, there are other situations that require paid time off.

New York State government signed new paid sick leave legislation into law on April 3, 2020 with the following stipulations:

• Small employers (1-99 workers): Five days of paid sick leave per year
• Large employers (100 or more workers): 14 days of paid sick leave per year

These conditions apply to small businesses with a 2019 net income exceeding $1 million. Any small business earning less can utilize Paid Family Leave or disability benefits instead of providing new sick days.

New York’s new paid sick leave rules go into effect on September 30th, 2020. From then on, employees will accrue paid sick leave to be used after January 1, 2021. It’s worth noting that employee’s wages will remain the same during sick leave.

In some circumstances, small businesses must cover certain employees for New York paid family leave. Situations that can qualify for 10 weeks of paid family leave include:

• Bonding with a child within 12 months of birth, adoption, or foster placement.
• Taking care of a family member with a serious health condition
• Assisting family when a spouse, partner, child, or parent deploys for military service.

These forms of paid leave can apply to domestic employees working 40 or more hours per week for an employer, as well as to all part-time and full-time employees (unless they have signed a waiver and were eligible to do so). Most such policies take effect four weeks after the 30th day an employee has worked for your business.

Finally, paid jury duty may arise for businesses with at least 10 employees. In this case, an employer is liable for paying up to $40 of wages for three days of jury duty.

Labor Laws

In addition to minimum wage and paid leave, there are labor laws that dictate the length and frequency of breaks during the workday. Employees working more than six hours, starting before 11 AM and continuing until at least 2 PM, are required to have a lunch period of half an hour between 11 AM and 2 PM. An employer is not required to offer paid meal time.

Mandatory breaks can apply in other situations as well, such as:

• Employees starting work before 11 AM and staying past 7 PM are allowed an additional 20-minute meal period between 5 PM and 7 PM.
• Employees working six hours or more starting after 1 PM or before 6 AM are allowed at least 60 minutes for a meal break if working in a factory and 45 minutes if working at another type of business.

Furthermore, shorter meal periods may be permitted if approved by the Department of Labor commissioner. An employer would have to display a sign or poster with this information in the workplace.

Child Labor Laws

The New York State Department of Labor maintains standards for age requirements, hour limits, and the type of work permitted for minors.

Any minor may not work during the school day unless they have already graduated or dropped out of school. When school is in session, 14- and 15-year-old employees have the following restrictions:

• Cannot work more than 3 hours on a school day
• Cannot work more than 8 hours on a non-school day
• Cannot work more than 18 hours per week
• Cannot work more than 6 days in any week

Other employment guidelines to be aware of include:

• 16- and 17-year-olds cannot work more than eight hours per day, six days per week.
• When school is not in session, 14- and 15-year-olds cannot work more than 40 hours per week.
• All minors need permission from a parent or guardian to work between 10 PM-12 AM before a school day.

There are also a variety of tasks and jobs that minors are prohibited from doing. Here are some items that can relate to a small business:

• Operating circular or band saws
• Painting or cleaning a building’s exterior from an elevated surface
• Operating power-driven woodworking or bakery and paper product machines
• Packing paint
• Operating a steam boiler

Payment Obligations

New York State law also provides guidelines for the frequency employees are paid. For instance, manual workers need to be paid on a weekly basis, whereas commission workers can receive a monthly paycheck. Employees outside these categories should be paid every two weeks.

If an employee is fired from a small business, New York Labor Law requires final paychecks to be paid no later than the regular pay period. For terminated employees receiving sales commission, their unpaid earnings must be paid within five business days after being fired or due for payment.

If an employee quits on their own accord, small businesses need to pay their final paycheck on or before the scheduled payday, with an option for mailing payment.

Disability Insurance

Employers in New York State must offer disability benefits to their employees for off-the-job injuries or illnesses that arise. Employers may take out 0.5% of an employee’s wages from their paycheck to contribute towards the cost of disability benefits. This may not exceed 60 cents per week.

Insurance plans must be purchased from state-licensed insurers according to the New York State Disability Benefits Law. New York State also operates its own disability insurance, NYSIF. Employers can request a quote online.

Disability benefits are calculated as 50% of an employee’s average weekly earnings over the past eight weeks of work. However, these benefits are capped at $170 per week over a period of 26 weeks in a one-year period. Note that employees may not receive paid family leave and disability simultaneously.

Worker’s Compensation Insurance

Unless you’re a sole-proprietor or work exclusively with independent contractors, you will have to provide worker’s compensation insurance for your employees. Unlike disability insurance, employers cannot take contributions from their employees’ paychecks to cover a portion of this cost.

The cost of worker’s compensation insurance will vary based on the number of employees and the risk associated with the type of work. Thus, many small businesses can get coverage at a modest cost.

New York’s Workers’ Compensation Board requires that Form C-105 (which contains the insurer’s information and policy number) be displayed within the workplace or else be liable for a $250 penalty.

Metropolitan Commuter Transit Mobility Tax (MCTMT)

Some small businesses in New York State may have to pay a Metropolitan Commuter Transit Mobility Tax for some employees. The determining factors are 1) whether the business is required to withhold income tax from wages and 2) if their payroll is greater than $312,500 each quarter.

The rate for MCTMT is calculated according to the following thresholds:

1. Between $312,500 and $375,000: 0.11%
2. Between $375,000 and $437,500: 0.23%
3. Over $437,500: 0.34%

Since this tax is due quarterly, it’s important to keep up on due dates for submission.

How State Of New York Payroll Works

Now that we’ve covered the bases for New York State taxes and regulations, let’s dig into the nitty-gritty of how payroll works for small businesses in the Empire State.

Step 1: Make Sure You’re Following All New York Payroll Laws

Doublechecking that you are adhering to the laws and regulations mentioned above should be your first step. Otherwise, you and your business could be liable for penalties, fees, and criminal charges, such as:

• Penalties up to $50,000 if convicted for not providing worker’s compensation insurance
• $1,000-3,000 fines for violating child labor laws

Step 2: Have the Proper Employee Documentation

After you’re sure you’re satisfying New York State law, it’s time to get all your employee paperwork and documentation in order:

• I-9: This form is used to verify an employee’s identity and eligibility to work in the United States.
• W2: This form is a wage and tax statement that employers must send to employees and the IRS at the end of the year.
• W4: New employees need to complete and return this form to ensure their first paycheck is accurate.

Step 3: Calculate Your Employee’s Pay

For small businesses with just one or two employees, calculating employee wages may not be too much work. Remember to factor in tips, commission, and paid time off — in addition to salary or hours worked  — for an accurate total.

If you have many employees or just want some assistance with the arithmetic, there are several options for small business payroll software to consider.

Step 4: Deduct Federal & State Payroll Taxes

Next, you’ll need to deduct both federal and state payroll taxes. It’s a sizable list, so let’s recap quickly.

Federal:

• Federal Income Tax: Information on the W4 form will dictate withholdings.
• Federal Unemployment Tax: Rate of 6% on the first $7,000 in wages
• Social Security: Flat rate of 6.2% for wages up to $137,700 in 2020.
• Medicare: Flat tax of 1.45%, employees earning more than $200,000 receive an additional 0.9%

New York State:

• State Income Tax: Ranges from 4-8.82% according to an employee’s income. Additional commission or bonuses are withheld at a rate of 9.62%
• Unemployment Insurance: Ranges between 0.525% and 7.825%
• Disability Insurance: Employers may take out 0.5% of an employee’s wages from their paycheck, for a max of $60.

Step 5: Process Payroll

After taking out deductions and withholdings, you will pay your employees their net earnings. As a small business, it may be advantageous to save money by writing checks manually, though payroll software can save precious time and reduce human error.

Step 6: Don’t Forget To Keep Records

Paying your employees is not the final step. It’s critical to maintain accurate payroll records to submit to the IRS and New York State. Issuing pay stubs to employees is one method, and it’s legally obligated. It’s also a good idea to store information electronically on a hard drive.

Filing electronically is mandatory for New York State, or else you’ll be subject to penalties and potential delays. This will require an NYS-45 form to be filed on a quarterly basis. This includes combined withholdings, wage reporting, and unemployment insurance returns.

New York Payroll Tax Resources

There are a lot of boxes to check to complete payroll and file taxes successfully. Fortunately, putting in the work to create a system that fits your needs will set your small business up for years to come. For further reading and information, check out our list of New York tax resources.

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