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17 February 2023
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2 minutes

Payroll compliance in the United States of America

Overall, the US has a relatively simple legislative environment when it comes to labour laws relating to payroll, especially at the federal level. However, there are differences between individual states, and employers need to follow both federal and state employment laws – which can add some complexity to ensuring payroll compliance when operating across state lines.

The US Department of Labor (DOL) administers and enforces more than 180 federal laws, which cover many workplace activities for around 150 million workers in 10 million workplaces. These are supplemented by multiple employment-related laws at the state and local levels.

  • Income taxes are levied at both federal and state level, so companies with employees in multiple states need to be familiar with local payroll practices – particularly with the rise in remote working which has seen an increase in the number of people employed by a company in one state but working in another. Seven states do not levy any income tax.
  • The main payroll-related law in the US is the Fair Labor Standards Act (FLSA), which prescribes standards for wages and overtime pay. For example, it determines the federal minimum wage and minimum level of overtime pay (as well as certain DOL overtime exemptions). Unless exempt, employees covered by the FLSA must receive overtime pay for hours worked over 40 in a work week at not less than 1.5 times their regular pay rate.
  • Several states and local jurisdictions have their own payroll-related laws, which may provide greater protection for employees than the FLSA. Generally, the law that is most beneficial to the employee prevails. For example, California and New York do not recognise the FLSA’s overtime exemptions for highly compensated employees or business owners.

If you’re doing business in the United States and are looking to learn more about US labour laws, incorporation procedures, tax implications, and compliance requirements, request a copy of our full country profile, Doing business in the United States of America.

Payroll compliance guide

The global payroll compliance landscape can be a difficult one to navigate and interpret. Overseas businesses can be subject to greater scrutiny on the part of local governments, regulators and tax authorities.

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