Multi-State Payroll

The majority of employers will employ workers that always work in a single state. Even if an employer has employees are located in multiple states, as long as their services are localized to the state in which they are a resident, that employer is considered a “single state employer”.

Some employers may have some employees that migrate between growing regions, for instance between the Salinas, California and Yuma, Arizona. Or an employer may be located near a border between states and provide employees for growers in both states (e.g. Oregon and Washington or California and Arizona).

In either of these cases, there are additional complexities when individual employees work in more than one state. In general, employees that work in multiple states will be subject to the payroll taxes and withholding of each state that they work in. This means that the program must provide income tax withholding settings and keep track of amounts withheld for multiple states (rather than just one state) per employee.

You are responsible for determining what payroll taxes apply under different situations. In generally, the Datatech Payroll system will support the calculation taxes for multiple jurisdictions. However, incorrect usage or configuration of the payroll system however can result in incorrect results.

There are additional complications for employees as well. It is possible that employees will need to file a non-resident income tax return for any states that they perform services in that they are not a resident of. When they file their income tax return for the state of which they are a resident, in general they can take a credit for taxes paid to other states where they worked.

The multi-state payroll option is an extra cost option and is not enabled by default. Contact Datatech if you need to enable this option.

When the multi-state payroll option is enabled, you have the ability to define which states each employee will be working in, along with the withholding settings for income tax that apply to each state. The program

State Income Tax Withholding

Your employee accounts should have the State for Withholding set to the state of which they are a resident. Additional states that they work in will be listed in the state tax rate grid.

In general, the state income tax withholding calculation is based on the state in which the employee works. For instance, if a resident of California is working in Arizona, then the Arizona withholding calculations will apply.

There is an exception to this rule for states in which there is no income tax. For instance, if an Oregon resident is working in Washington, the wages are subject to Oregon withholding. However, since Washington does not have an income tax, the system will calculate Oregon withholding on the check. (If the Oregon income tax withholding is not

Other State Withholding

Some states have additional withholding requirements. For instance, in Washington, the L&I tax (provides worker’s comp coverage) is paid by both the employer and the employee. Employees that work in Washington state will have the L&I deduction calculated.

In other cases, a state tax may be based on the state of residence as well as where the work is performed. For instance, the Oregon Transit Tax applies to wages earned by all Oregon residents regardless of where they are working, and to all non-residents that are working in Oregon.

Worker’s Comp Insurance

Worker’s Comp Insurance coverage is based on the state in which an employee works.

Minimum Wage

Many states implement a minimum hourly pay rate that is higher than the federal minimum wage. The state in which an employee works therefore determines what the minimum hourly rate should be. This rate is used to verify that employees earning piecework earn at least the minimum wage.

Paid Family Leave Information for Washington & Oregon Multi State Employers

Datatech has several customers that have employees perform work and report wages to both Washington and Oregon. It has been our recommendation to use the place of performance and localization guidelines to determine which state to report to for unemployment purposes. However, some customers have chosen to report UI to both states for an individual employee based on the location of the work.

How to Report Paid Family and Medical Leave Wages

This has caused the question of how to report Paid Family and Medical Leave wages. We recently reached out to the Paid Leave Oregon DepartmentFrom the Paid Leave Oregon Team:

Thank you for reaching out to Paid Leave Oregon. If the work is regular in Oregon, they could be covered under Paid Leave Oregon. It would then depend on where the base of operations is, where the work is directed from, or where their residence is. The amount of hours worked should not determine which state wages are reported to. The employer would be reporting all wages for this employee based on the place of performance and localization guidelines.

If the work is performed in multiple states with regularity, including Oregon and Washington, from which state is the base of operations, or if there is no base of operations, where does direction and control come from?

If the base of operation or direction and control comes from Oregon, all of the employee’s wages associated are reportable to Oregon.
If the base of operation or direction and control comes from Washington, all of the employee’s wages and hours associated are reportable to Washington.

I have attached our Washington/Oregon Place of Performance Letter for your reference.

WA-OR-Place-of-Performance-Letter-October-2022.pdf

Please review our place of performance rules for additional clarification. You may also check out our website and sign up for email updates on the program.

Thank you again for your message.

for clarification. They have confirmed that employees should only be reported to one state.

The Paid Leave Oregon Team

Employers that report wages to both Washington and Oregon should use the guidelines to determine one state to report the employees wages to.

When entering a new employee or editing existing employees you can select this state in the State Taxes section of the Employee Entry > State for FML.

Reporting UI Wages

Employers that still report UI wages to both states for an individual employee should review the same parameters for determining where to report employee UI wages. If your Datatech software is set to report by state worked, and you would like to change to the recommended method of one state per employee, please contact our Support department for additional information.