3 Multi-State Payroll Mistakes to Avoid


When Texas-based BenefitMall takes on a new client, one of the first things they want to know is whether that client has operations in multiple states. This is critical information. Federal tax laws are the same in all 50 states, but state laws vary greatly. Not having a good handle on state regulations can cause big problems for companies with multi-state operations.

A good example of how easy it is for companies to get in trouble is found in reciprocity laws. There are some states with shared borders that reciprocate in terms of one another’s state income tax. Such reciprocity relieves a worker who lives in one state but works in the neighbor state from being subject to double taxation. But not all states have reciprocity laws. It can be tricky to figure out payroll in some of these cases.

Among all the mistakes multi-state operations make, the three listed below are known to easily cause compounding problems. Any company with multi-state operations would do well to heed BenefitMall’s call to make sure everything is in order.

Mistake #1: Ignorance of State Laws

Companies go to great lengths to understand federal tax laws, and with good reason. Getting on the bad side of the IRS could completely destroy a company. It could ruin the careers of a company’s owners and executive management. But for some reason, many of those same companies do not pay a lot of attention to differences in state law.

One likely reason could be a misunderstanding of how states apply federal tax regulations. There are some states that closely mirror the federal government in terms of withholding, payroll taxes, etc. There are others that do things completely differently. Just assuming that every state falls in line behind Washington is a mistake.

Companies with interstate operations need to be fully versed in the tax laws of each state they are active in. If that means bringing on payroll specialists with expertise in each active state, so be it. Another option would be to hand payroll off to a company like BenefitMall.

Mistake #2: Adopting Payroll Tunnel Vision

A second big mistake is adopting payroll tunnel vision. Tunnel vision is that mindset of only dealing with what is directly in front of you. From a payroll standpoint, this would be akin to team members focusing most of their attention on the tax laws in whatever state the company’s headquarters are located but ignoring the laws in other states.

The thing with tunnel vision is that it does not change anything. It is the equivalent of hiding one’s head in the sand and hoping the problems will go away.

Mistake #3: Not Appropriating Technology

Even being fully cognizant of state laws does not prevent every possible error that could possibly be made. The fact is that a lot of errors are human errors rather than lapses in legal knowledge. BenefitMall says that technology represents the best way to avoid such errors.

Companies with interstate operations are good candidates to adopt the latest payroll technology. Things like cloud payroll and digital time and attendance tracking can go a long way toward eliminating costly mistakes. Where interstate operations are concerned, adopting technology creates a more unified solution across the entire company regardless of how many states it is active in.

Interstate payroll is a complex animal. If your company is active in multiple states, do not make things harder on yourself than they need to be. Get your payroll department in order, avoid the three mistakes described here, and then consider outsourcing your payroll processing to a third-party provider.