No matter what you do on a given day, you’re likely experiencing some sort of COVID-19-related consequence. Whether it is having to wear a mask when you are out in public, dealing with the loss of a job, or trying to figure out how to pay unemployment tax in the wake of remote work, COVID-19 is creating hurdles.
What we are talking about here is how to stay compliant with the State Unemployment Tax Act (SUTA). Before COVID-19, there were aspects of the payroll that probably were self-explanatory—like SUTA. For instance, if you had a business, and your employees worked at that business, paying unemployment taxes were likely easier.
Now, with remote work becoming standardized, things are different. Perhaps your business is in one state and your employees work in another. Maybe they are working part of the year remotely at home and the rest of the year in the office.
With all these variables, it’s easy to get confused as to which state to pay your unemployment taxes to. We get it: you want to do the right thing, but you are unsure how. Let’s go over what to do.
Staying Tax Compliant
Although you might feel your business is in a new situation in regards to paying state unemployment tax, it really isn’t.
Multi-state tax compliance is not new. Neither is having employees who work in one state but live in another. In fact, looking to multi-state tax compliance laws are where we will get our answers.
Part of your responsibility as an employer is to pay into unemployment. What we are focused on here is how to pay into it.
By making contributions towards it, your laid off or furloughed employees (especially during the COVID-19 pandemic), these people will be able to collect their unemployment benefits.
To ensure they are taken care of, we want to send the taxes to the right state. Common questions arise from having employees who live in one state but work in another or working remotely part of the year and working in the office for the other part.
Here Are Your Answers
Two quick rules: you pay unemployment taxes to the state that will fund them in the event they become unemployed, and only pay unemployment taxes to one state.
There are essentially four different things look at when determining the state to pay taxes to. Where is the service being provided? When is the business located? How and where does the control of business occur? And, lastly, place of residence.
To really figure out what state to pay unemployment in, you need to ask yourself where the services are occurring. If an employee works in one state, then the question answers itself: it’s the state they work in. If they work in two states, which state do they work in primarily?
After reading through my above explanation, maybe you’re at the point where you still asking questions because your employees travel.
Easy. Determine where their “Base of operations” is. If you have truckers, where are they getting their instructions or inventory from? Is there a centralized location where the trucks get serviced and repaired? If so, this location would be the state you paid unemployment insurance to.
No Physical Location
Perhaps you don’t have a centralized location. For instance, you manage a team of salespeople from your home. Though you might not have a consolidation point, you still provide direction and control for your business and to your employees from one place. And this will determine where you send your unemployment taxes.
With the above example, say your employee never sets foot in the state where the direction and control are given. Let’s say they do zero work whatsoever in the state where direction and control originates. Ok, so where does the employee actually live? And if that employee lives and does some work in that state, then that’s the state they would be covered in.
Helping Your Employees
As an employer, if you find yourself in the unfortunate situation of having to lay off an employee, they might ask you about unemployment benefits. Having an answer might give them some solid ground during an uncertain time.
If they worked and lived in the same state, they will be covered within that state.
If they worked in one state and worked in another, have them contact the state where they are currently living. They will go through them or learn how to file a claim within another state.
Either way, you are giving them immediate feedback and telling them what to do next.
As it was mentioned before, it is part of your responsibility to pay into unemployment insurance. Though we’ve gone over where to send the money, it is important to realize that tracking and managing your payroll properly and accurately is critical to meeting your responsibilities as an employer.
Try PayWow today and see how easy it is to manage your payroll.