As a founder, one of your primary responsibilities is attracting and retaining the best employees for your startup. That may mean hiring someone in another state, accommodating an employee’s move across state lines, or hiring staff in a particular location to expand your business. Each out-of-state employee that your startup hires means you will have to make sure you’re compliant with the tax and employment laws in that jurisdiction. If you don’t register your company and keep your registration current, your startup’s payroll could get blocked.
Blocked payroll – how does it happen?
Even if you’ve provided all the information to your PEO, you can still encounter issues with your payroll. Payroll can be blocked for a variety of reasons, and many of them may not be obvious. Blocks can involve a single employee or your entire staff, which can put your company in a very uncomfortable situation. Some reasons can include:
- New employees. New employees need to be properly entered into your payroll system. Onboarding new employees can take time, based on their locations and start dates. It’s important for you to notify your PEO as soon as possible about new hires in case registration is required. Some PEOs may allow you to pay the employee while you work through the registration process, but others will not.
- Relocated employees. Employees who move from one jurisdiction to another can trigger payroll blocks. It’s important to assign the proper work location to staff members.
- Local jurisdictions. Even if you’re registered with a state’s government, you may need to register with local jurisdictions. For example, local income taxes for employees in Pennsylvania are based on political subdivision (PSD) codes. Some other states have similar systems.
Delayed registrations. Different states process tax registrations at different rates. If you’re not already registered in the employee’s tax jurisdiction, there could be significant paperwork requirements, and some states still require submitting paper documents. If you’re not already registered in a state, there are a number of steps you need to follow.
Kruze Consulting can help solve payroll problems
If your payroll is blocked, try to determine the reason(s). Check the following items:
- Verify your employee’s information. Employees need to inform you promptly if they’ve moved into other tax jurisdictions.
- Review your company information in your payroll system. Name, address and other information should line up with what the state agency has on file.
- Check the status of your state accounts. If you haven’t filed returns in a specific state, or if your application was just submitted and isn’t active, you may be blocked. Remember that some states are very slow to process applications.
- Corroborate your state and federal account numbers. The account numbers issued to you by the state and federal government need to match the ones in your payroll system.
- Make sure you have the correct reporting agent on your account. If you’ve changed your payroll provider recently, your current provider may not be able to run payroll. Make sure your current provider has been authorized to file and pay for your company.
If you can’t determine why your payroll is blocked, you may need assistance to investigate the reasons and support to correct the payroll issue quickly. If you’re a Kruze Consulting client, contact your account manager as soon as possible, and we can work with you to resolve the issue. You can also contact your payroll provider for assistance, but remember that registering with tax agencies in different states and municipalities is a complex process. Your professional employer organization (PEO) typically does not handle that paperwork.
The tax team at Kruze Consulting is experienced at identifying and resolving payroll problems, and we can help you register your startup in state and local tax jurisdictions. For more information about the services we offer, contact us.