When it comes to payroll regulations, there’s a lot you need to keep track of. In addition to federal laws, your state likely has its own rules in place. So, how familiar are you with payroll laws by state?
From minimum wage to mandatory paid time off, read on to learn about common payroll rules by state.
8 Common payroll laws by state
Quick answer: Common state payroll rules impact minimum wage, overtime, pay frequency, payment methods, paid sick leave, paid family leave programs, final paycheck deadlines, and PTO payout requirements. When federal, state, and local rules differ, employers typically must follow the standard that’s most favorable to the employee.
Following federal laws is critical for payroll compliance. But if you only follow federal laws and dismiss state regulations, you could wind up with substantial penalties.
Take a look at the following payroll rules by state that could impact your business.
1. Minimum wage
You’re likely familiar with minimum wage laws. You know, the minimum amount you can pay an employee per hour under federal law. The federal minimum wage is currently $7.25 per hour, but that might not be the rate you need to follow.
States can set a higher minimum wage than the federal rate. And, many do. Approximately half of the states require employers to pay employees a higher minimum wage.
If your state’s minimum wage is higher than the federal wage, you have to follow it. And, don’t forget that localities can set an even higher minimum rate that trumps state law.
One more question for you: Do you have employees who earn tips? Although the federal tipped minimum wage is $2.13 per hour, your state may set a higher tipped minimum wage, too. And if it does, you have to follow it.
Failing to pay employees your state’s regular or tipped minimum wage will no doubt upset your workers and violate employment laws.
Rule of thumb: Always pay the highest applicable rate across federal, state, and local laws. If your state allows a tip credit, ensure employees’ cash wage plus tips meets or exceeds the required minimum.
2. Overtime pay
Under federal law, you must pay nonexempt employees 1.5 times their regular hourly rate for any hours they work over 40 in a workweek.
But, some states take overtime pay a step further by setting daily overtime laws for nonexempt employees.
These laws require employers to pay employees the overtime rate if they work more than a certain number of hours in a day (e.g., 8, 10, or 12 hours).
In addition to overtime pay laws, California requires employers to provide double-time wages in some situations. If you’re a California employer and a nonexempt employee works more than 12 hours in a workday, provide double-time pay for the extra hours.
Some states and local rules also trigger overtime for hours worked on the seventh consecutive day or after a threshold of consecutive hours. Verify your state’s definition of a “workday,” “workweek,” and any daily or seventh-day overtime rules.
3. Pay frequency
Your state might also regulate how often you must pay employees. Pay frequency requirements by state determine whether you must pay employees at least weekly, biweekly, semimonthly, or monthly.
Almost every state has pay frequency requirements. Alabama, Florida, and South Carolina do not.
For example, Delaware employers must pay employees semimonthly, biweekly, or weekly. If you’re a Delaware employer, you cannot pay employees monthly.
Choose a pay frequency that meets or exceeds your state’s minimum requirement and apply it consistently to each employee classification.
4. Payment methods
Some states also regulate the way you pay your employees. Direct deposit and pay card laws by state may prohibit you from paying employees via direct deposit and pay cards if you don’t meet certain requirements.
For example, your state may require you to do the following before paying employees with these methods:
- Ask employees for permission
- Offer additional payment methods (e.g., paper check)
- Cover accompanying fees
- Notify employees of fees
Before setting up payroll for a new hire, check your state’s laws on acceptable payment methods. Some states also restrict mandatory electronic pay; many require written consent before enrolling an employee in paycards or direct deposit.
5. Paid sick time
There is a growing number of states that require employers to provide paid sick time to employees.
State-mandated paid sick leave laws determine how many hours employees can use when they are sick. And, state laws dictate what employees can use the sick time for, where they cap out at, and whether they can carry over unused sick time from year to year.
If your state has paid sick leave laws, your payroll will be impacted. You will need to track how many days off your employees have and pay them for the time they use.
Note: Cities and counties can set their own sick leave rules that differ from state law. When in doubt, apply the law that gives the employee more protected, paid time.
6. Paid family leave
Several states require employers to give employees paid family leave (PFL). But, employers do not pay employees for time off out of pocket.
Instead, paid family leave law requires you to withhold, contribute, or withhold and contribute money from an employee’s wages. Then, you remit it to the state, and the state distributes paid family leave benefits to qualifying employees.
If you’re impacted by this payroll law, understand how much to withhold from an employee’s wages or contribute to the PFL premium.
PFL programs are separate from the federal FMLA (which is unpaid). Your state will define covered reasons (e.g., bonding, caregiving), benefit amounts, and any employer vs. employee funding split.
7. Final paychecks
The majority of states have final paycheck laws in place. These laws regulate when employers must provide an employee with their last paycheck when they leave a business. Many states have different laws depending on whether the employee quit or was fired.
Understand final paycheck laws by state to ensure you don’t miss your state’s deadline.
Also confirm whether your state requires delivery by the next regular payday or a fixed number of days, and whether additional items (e.g., wage statements, accrued PTO if applicable) must be included.
8. PTO payout
Whether your state requires you to offer paid time off or not, PTO payout laws by state may apply to you. Payout laws require you to pay employees for earned but unused paid time off either at the end of the year or at the time of termination.
So, do these laws affect you?
If you offer paid time off to employees and your state has a PTO payout law, you must follow it. You can figure out how much time you owe the employee by multiplying their hourly rate by the number of earned but unused hours.
Where state law is silent, your written policy usually governs. Make your policy clear about accrual, carryover, forfeiture (if allowed), and payout at separation.
How state and federal payroll laws interact
- Federal laws (e.g., FLSA minimum wage and overtime, recordkeeping; FICA and FUTA taxes; Equal Pay Act) set the baseline nationwide. States and localities can add protections or higher standards.
- When multiple laws apply, follow the rule most favorable to the employee (e.g., the highest minimum wage or the most generous leave entitlement).
- Federal requirements to remember everywhere:
- Withhold and match FICA (Social Security and Medicare) and pay FUTA.
- File core forms on time (e.g., Form 941 quarterly; W-2s and 1099s by January 31).
- Maintain required payroll records (hours, wages, deductions).
- Some federal protections depend on employee count (e.g., FMLA generally at 50+). State programs (like PFL or paid sick leave) may apply at lower thresholds or from the first employee.
- If you employ remote workers in multiple states, apply each employee’s work-state rules for wages, overtime, pay frequency, paid leave, and final paychecks.
Keeping up with the many payroll rules by state
Payroll laws by state are always changing. As a result, many business owners have trouble keeping up with them. Here are a few things you can do to stay up-to-date with your state’s regulations:
- Subscribe to payroll-related publications.
- Pay attention to notifications from your state.
- Bookmark your state labor and tax agency pages for alerts on wage changes, leave programs, and filing updates.
- Review city or county ordinances where employees work, especially for minimum wage and sick leave.
- Create a recurring checklist to audit pay frequency, overtime practices, and payout rules after each law change.
- Use online payroll software.
State compliance checklist
- Register for state withholding and unemployment insurance where employees work.
- Confirm current state and local minimum wage (and tipped wage, if applicable).
- Set a compliant pay frequency and acceptable payment methods.
- Configure overtime rules to match state daily/weekly thresholds (and any double-time where required).
- Implement and track any mandated paid sick leave and state paid family leave contributions.
- Document final paycheck timing and PTO payout in your policy according to state law.
- Maintain required payroll records and deliver pay stubs as your state requires.
- Align federal filings (FICA/FUTA, Forms 941, W-2/1099) with your payroll calendar.
Payroll solutions for small businesses
Patriot’s online payroll helps small employers stay compliant as state and local rules change:
- Automatic tax updates and calculations for federal, state, and local withholding
- Flexible pay frequencies and supported payment methods (including direct deposit)
- Reports for recordkeeping and year-end forms
FAQs
Minimum wage (including tipped wage), overtime (daily vs. weekly rules), pay frequency, acceptable payment methods, paid sick leave, state paid family/medical leave programs, final paycheck deadlines, and PTO payout requirements.
Local ordinances can set higher standards (often for minimum wage and sick leave). When federal, state, and local rules conflict, apply the rule most favorable to the employee.
Apply the laws of the state (and locality) where the employee physically works. Register for that state’s withholding and unemployment insurance, follow its wage and leave rules, and file and pay taxes there.
Core federal requirements include FLSA (minimum wage, overtime, recordkeeping), FICA and FUTA taxes, equal pay protections, proper worker classification, and timely filings (e.g., Forms 941 quarterly; W-2s/1099s by January 31). States then add their own requirements on top.
It depends on your state. Some require payout of earned, unused PTO at separation; others defer to your written policy. If your state is silent, your policy typically controls, so write it clearly and follow it consistently.
Deadlines vary by state and can differ if the employee quits or is terminated. Some states require payment on the last day or within a set number of days; others allow payment by the next regular payday.
Several federal and state laws scale with headcount. For example, federal FMLA typically applies at 50+ employees within a 75-mile radius. Many state paid leave programs and wage/hour rules apply from the first employee. Always check thresholds for each law.
Keeping up with changing payroll laws by state is tricky. But, it doesn’t have to be. Patriot’s payroll automatically updates to reflect current tax laws. Why not start your free trial today?
This article has been updated from its original publication date of June 22, 2020.
This is not intended as legal advice; for more information, please click here.
