The Complete Guide To New York State Payroll
If you’re like most small business owners doing business in The Big Apple, you have a lot more to worry about than just staying on top of payroll. Managing your inventory, improving employee performance and, most of all, delivering consistent customer satisfaction are just a few things that likely come to mind. Of course, you also can’t afford to let obligations like taxes and payroll slip unless you want to be in deep water financially and legally.
The complex details of New York State payroll laws can be time-consuming and confusing to understand; save your time on researching and use this quick guide for answers to the most commonly asked questions. We know small businesses have plenty on their plate already, why is why this article breaks down all the steps involved in doing payroll in New York State and the key regulations small business owners like yourself should be aware of.
Ready to learn how to do payroll in New York? Read on!
Table of Contents
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, and it just went up recently in much of the state.
The general minimum wage rate schedule in New York State applies to employees working in most industries. The schedule excludes workers in fast food or hospitality who rely on customer tips. Let’s take a look at what businesses across the state need to pay their employees moving forward:
The minimum wage for fast-food workers follows its own schedule for rate increases. As of 2021, New York City has a rate of $15. All fast-food workers in New York City must make at least $15.00 an hour. For the rest of the state outside of New York City, minimum wage rates are on an annual schedule to increase annually until they reach $15.00 by July 1, 2021.
2021 has brought some other changes to New York State payroll laws as well as regulations applying to wages and hours. The minimum salary levels that are now exempt from overtime are rising and some employers may not be able to lend tip credits toward their minimum wages anymore. Tip credit changes include:
- Non-hospitality employers subject to the Wage Order for Miscellaneous Industries and Occupation face a change as of December 31, 2020, that requires them to reduce their applied tip credit by 50%.
- Employers of non-food service workers including delivery staff and bathroom attendants are subject to a $2.35 tip credit per hour rate in Long Island & Westchester, and $2.10 in the remainder of the state.
- Foodservice workers including waiters, bartenders, bussers, and runners are subject to a new tip credit per hour rate as of December 31, 2020, which is $4.65/hr in Long Island & Westchester and $4.15 in the remainder of the state except for NYC.
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 regulation changes, 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.
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.
New York State has a separate unemployment tax that businesses will likely have to pay. Any business that opened in 2020 has contributed a rate of 2.5%, while other employers’ rates have ranged between 0.525% and 7.825%. Employers can complete the registration process online.
However, as of January 14, 2021, New York State will not charge employer UI accounts for benefits that were paid during the COVID-19 pandemic. The 2021 New York state unemployment insurance (SUI) tax rates range from 2.025% to 9.826%, up from 0.525% to 7.825% for 2020. The new rate in 2021 for employers is 4.025%, up from 3.125% for 2020. Contributory employers pay a 0.075% Re-employment Services Fund surcharge as well.
New York State Unemployment Insurance UI contribution rates are as follows for 2021:
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:
- Position pay rate
- Overtime rate, if applicable
- How they will be paid (e.g., per hour, shift, week)
- Any amount employer intends to claim as part of the minimum wage (e.g., tips, meals, lodging)
- Pay schedule
- Employer’s name and names under which business is done
- 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.
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, other situations require paid time off.
As of January 2021, employers in New York must grant up to 12 weeks of paid family leave. Additionally, certain employers in New York State must provide at least five days of job-protected, paid sick leave to employees under a mandatory or precautionary order of quarantine or isolation due to the COVID-19 pandemic. The amount of paid sick leave employers pay will depend on how many employees they staff as well as their net annual income.
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 went into effect on September 30th, 2020. Employees have since accrued paid sick leave that is eligible for use 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.
New York 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 Law 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
New York State law also provides guidelines for the frequency at which employees are paid. For instance, manual workers need to be paid weekly, 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 Requirements In New York
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:
- Between $312,500 and $375,000: 0.11%
- Between $375,000 and $437,500: 0.23%
- 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 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 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 $142,800 in 2021.
- Medicare: Flat tax of 1.45%, employees earning more than $200,000 receive an additional 0.9%, and a flat rate of 2.9% for self-employed persons.
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: New York State payroll tax rates for UI range from 2.025% to 9.826%
- 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 quarterly. This includes combined withholdings, wage reporting, and unemployment insurance returns.
New York State Payroll FAQs
New York Payroll Tax Resources
There are a lot of boxes to check to complete New York State 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. If you’re completely new to doing your own payroll, we have 11 easy steps you can follow to quickly become a payroll pro.
Comfortable with processing your own payroll and are looking for solutions to make you more efficient? We’ve rounded up a list of 2021’s best payroll software for small businesses to streamline your payroll process and minimize your stress.
For further reading and information, check out our list of New York tax resources.