Most digital agency owners don’t have the time and knowledge to handle payroll. Understanding tax laws and complying with tax requirements can be daunting for most. Imagine doing that in different states, and you have the perfect recipe for a payroll and tax disaster.
Our digital agency multi-state payroll guide will help you navigate the complexities of handling employee payments and taxes across states.
At the very least, you can appreciate the value that professional accountants can bring to your organization if you choose to focus on running your agency instead of dividing your time handling multi-state payroll.
Let’s dive in.
All About Multi-State Payroll
As the name suggests, multi-state payroll involves handling employee salaries and benefits across state borders.
You’re running a multi-state payroll if:
- Your marketing agency has an office in another state
- Employees are traveling between states (living in one and working in another)
- You have employees working in multiple states
- And the most common trigger: you’re managing a remote (work-from-home) team
Multi-state payroll is like serving several plates of the same dish. While they all contain the same ingredients (employee salaries and taxes), the portions can vary (different types of taxes).
Why Multi-State Payroll Can Be Complicated
Payroll compliance requirements vary across states and local governments. Each state runs itself differently and at times imposes requirements that seem to serve the purpose of only making your life more difficult.
Varying payroll and tax regulations can be confusing, and it’s not uncommon for a digital agency to miss crucial reporting guidelines, leaving them vulnerable to tax penalties.
States vary in tax deductions, exemptions, credits, and other tax-related concerns. Failure to comply with these regulations can have legal (and financial) consequences.
Unsurprisingly, handling multi-state payroll is more time-consuming and laborious than managing single-state payroll. Beyond the additional work, marketing agency owners must carefully plan their payrolls.
For example, if your agency has employees in ten different states, you’ll need to file ten payroll returns with ten separate state tax agencies, each with different tax rules. Compare that to having ten employees in one state, where you only need to file and monitor a single return.
In addition to payroll and income taxes in each state, agency owners need to stay up to date on everything from workers’ compensation and disability to paid family leave and unemployment tax.
As I always say, “It’s easier to pay twenty employees in one state than it is to pay two in separate states.”
Tips and Tricks to Effectively Handling Multi-State Payroll
Managing multi-state payroll can be tricky, but if you decide to handle it yourself, here are some practical steps to follow for smooth payroll processing across different states.
Read and understand each state’s revenue code
As mentioned, states and cities have different tax regulations, including which taxes businesses like digital agencies must pay, how much they should withhold and collect from employees, and the required contributions from employers.
Consider using a PEO
A PEO (Professional Employer Organization) is an efficient way to pay employees and offer benefits. Essentially this company employs your employees for tax purposes. This removes a large burden from the digital agency owner’s hands.
When we see a fast-growing agency hiring remotely, we almost always go with a PEO. Most of the agencies we work with use Justworks and Trinet. A PEO lets you move fast and efficiently, leaving much of the compliance headache behind, so you can focus on running your agency.
Understand a tax nexus
There’s a good chance that having a remote employee in a separate state is going to trigger an income tax nexus in that state. This means you’ll need to file income tax returns not only for your digital agency but also for yourself in that state.
A “nexus” is a term used when a state considers you to be operating within its borders. This can happen for various reasons, such as the amount you sell in that state, but the most common cause is having employees working there.
If you have employees in a state where you’re not already filing an income tax return, be sure to discuss this with your agency CPA.
It’s all running well until it isn’t
Running payroll is easy—until you get that first tax notice. Many of you know exactly what I’m talking about. The more states your employees are in, the more notices you’ll receive. It’s just a numbers game.
Payroll notices are a hassle, and no agency owner enjoys receiving them, let alone dealing with them. Most notices aren’t a big deal, but you don’t know that until someone looks into it. That’s why having a trusted CPA to handle them is invaluable.
We pride ourselves on being expert multi-state payroll specialists. We interpret those notices, get them resolved with your payroll company, and keep you out of it. Even better, we set up processes to reduce the number of notices you receive in the first place.
It’s important to have a trusted advisor to deal with those pesky payroll notices when they do come in.
Our Final Thoughts on Multi-State Payroll
Managing payroll in one state is already challenging enough. When you add employees living or working in multiple states, it can quickly become overwhelming for digital agency owners.
You shouldn’t have to master the revenue and tax codes of every state, especially when it takes your focus away from running your business.
That’s where payroll tax specialists and experienced agency accountants come in. These professionals are experts in state-specific payroll and tax regulations, ensuring compliance while lifting the burden off your shoulders. While it’s an added cost for your business, it’s an investment you can’t afford to overlook.
If you’re looking for a new CPA for your agency or curious about how we can help you manage your multi-state payroll, feel free to reach out anytime. Head over to our contact page to book your first call.
Until next time!
