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Doing payroll in New York can be more tedious and costly than handling it in other states. Its minimum wage rate is steadily increasing, so you could find yourself required to pay employees a minimum of $15 an hour, more than twice as much as the federal requirement. And in addition to paying regular federal payroll taxes, unemployment insurance, and possibly the Metropolitan Commuter Transportation Mobility Tax, you have to withhold federal, state, and local income taxes from employee paychecks.

Because New York is a progressive state, you'll quickly realize that payroll rules change often and are challenging to stay abreast of without payroll software. With Gusto, however, state compliance rules, like overtime pay and tax rates plus tax filing deadlines, are easy to follow; they're built into the software and populate according to the location you designated during setup. You can also pay your employees via direct deposit at no additional cost, and health insurance for New York is available. Click below to start a 30-day free trial.

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How to Do Payroll in New York: Step-by-Step Instructions

Below are the basic steps and specific instructions on how to do payroll in New York. If your total payroll tax withheld in the previous year was over $100,000, the state will enroll you in the PrompTax program and give you a six-digit code for filing electronically. If you use a payroll service, it will need this number.

For greater detail on general payroll procedures, consult our article on how to do payroll.

Step 1: Set up your business as an employer: At the federal level, you need your Employer Identification Number (EIN) and an account in the Electronic Federal Tax Payment System (EFTPS).

Step 2: Register with the state of New York: If you are a new business or household employer, you need to register for unemployment insurance (UI), wage reporting, and withholding tax through NYBE. To register an agricultural business, nonprofit organization, or an Indian tribe, go to the New York Department of Labor site.

Your New York State Identification Number is for state income tax withholding; use your Federal EIN followed by a location code (if applicable to your business). Your UI employer registration number will be assigned to you separately.

Create an online services account to file electronically.

Step 3. Set up your payroll: Be sure to consider the additional taxes like reemployment tax and state disability insurance.

Step 4: Collect employee payroll forms: This is easiest if you do it during onboarding. Forms include W-4, I-9, and Direct Deposit information. Employees also need to fill out Form IT-2104, the NY State Withholding Allowances Certificate.

Step 5: Collect, review, and approve time sheets: Given the complexities of NYC tax law, inaccuracies could cost you, so review time sheets carefully.

Step 6: Calculate payroll and pay employees: Don't forget to calculate withholdings for non-residents unless you have a bona fide business location in their state.

Step 7. File payroll taxes with the federal and state governments: You must pay withholdings within three or five days of exceeding $700, depending on the filer type. However, many businesses find it more convenient to simply pay this with each payroll.

Follow the IRS instructions for federal taxes, including unemployment. New York withholding, wage reporting, and UI returns must be filed electronically and balances due paid via ACH debit on the New York Tax Department's website.

The NYS-1 and your withholding payments are usually filed after each payroll. If your withholdings are less than $700 for a calendar quarter, then you can remit payment with the NYS-45 instead.

New York tax filings NYS-45 and MTA-35 are all done quarterly.

You may file on the next business day if any of these dates fall on a Saturday or Sunday.

For New York Income Tax Withholdings:

Use the withholding allowance from the employee's Form IT-210 to determine how much you should withhold in income taxes from each employee's paycheck each period. If the employee did not file one, use zero as the number of allowances. You can find withholding amounts on the following tax tables.

• NYS-50-T-NYS, New York State Withholding Tax Tables and Methods
• NYS-50-T-NYC, New York City Withholding Tax Tables and Methods
• NYS-50-T-Y, Yonkers Withholding Tax Tables and Methods
  
• Unemployment Taxes: When you register your business and apply for an EIN, the state will send you your UI tax rate for you for the year. If you don't receive it, you may be able to look it up on your Business Express account or Department of Labor (DOL) account. You can also call the employer hotline at 888-899-8810 between 8 a.m. and 5 p.m. Monday through Friday. SUTA is recorded on the NYS-45 and paid quarterly.
• Metropolitan Commuter Transportation Mobility Tax (MCTM) taxes: These are due each calendar quarter. The MCTM is your payroll expense for all covered employees for each calendar quarter multiplied by the applicable MCTMT rate from the table below. File them using Form MTA-305 online through the online services account or by mail. These must be paid on time.

Step 8: Document and store your payroll records: It's important to keep records for all employees, even those terminated, for several years. Learn more about recordkeeping requirements in our article on retaining payroll records.

In New York, you must keep all records of employment taxes for at least four years. If you withhold state and city taxes, you need to keep all records of these tax filing reports and information returns available for review by the New York Tax Department.

Step 9: Do year-end payroll tax reports. These are the federal Forms W-2 (for employees) and 1099 (for contractors.) Employees and contractors must have these by Jan. 31 of the following year. New York does not require you to file W-2s or 1099s with them.

New York Payroll Laws, Taxes and Regulations

Unlike some states, New York doesn't have a regular payment schedule for tax withholdings, like semi-monthly or quarterly. Instead, if you were required to pay three or five days after your accumulated withholdings exceed $700:

• Three days if your withholdings in the calendar year preceding the previous calendar year exceed $15,000
• Five days if your withholdings in the calendar year preceding the previous calendar year were less than $15,000

The state will inform you of changes, and new businesses have five days to file after being notified by the NY Tax Department.

New York Taxes

New York has state and some local taxes, state unemployment taxes (SUTA), and the Metropolitan Commuter Transportation Mobility (MCTM) Tax. You are also responsible for paid family leave, sick leave, workers' compensation, and state disability insurance. At the federal level, you need to pay federal FICA taxes (Social Security and Medicare) and withhold a matching amount from your employees' paycheck. Both you and your employees will pay 6.2% of their paycheck to the Social Security Fund and 1.45% to the Medicare fund.

The Form NYS-50, Employer's Guide to Unemployment Insurance, Wage Reporting, and Withholding Tax, has all the details you need for doing taxes in New York, including NYC and Yonkers. Most employers are required to file it electronically on the site; if you opt to mail in a paper copy, you could be charged penalties.

New York State Unemployment Insurance Taxes (SUTA)

Effective Jan.1, 2020, agricultural employers and farm crew leaders under certain conditions must provide unemployment insurance coverage for their employees. H-2A foreign guest workers are exempt.

New York charges state unemployment insurance taxes (SUTA) in the amount of 2.25% to 9.825% on the first $11,800 of an employee's wages. It also charges a reemployment tax of 0.075% on the first $11,800 of an employee's wages.

Please note: You must pay SUTA (and FUTA) out of your business funds; cost shouldn't be passed to the employees.

You must pay tax for all employees except the following:

• Members of an LLC, LLIC, or LLTC
• Students in regular attendance in the educational institution which employs them if their employment is incidental to their course of study
• Student's spouse employed by student's educational institution if advised at time of hire that the employee is under a program of financial assistance to the student
• Students enrolled in nonprofit or public educational institutions in certain work-study programs
• Students enrolled full-time in an educational institution who are employed at certain camps
• Sole proprietor, their spouse, or child under the age of 21
• Persons whose employment is subject to the Federal Railroad Unemployment Insurance Act
• Freelance shorthand reporters under certain conditions
• Licensed real estate brokers or sales associates under certain conditions
• Licensed insurance agents or brokers under certain conditions
• Some employees of nonprofit and religious organizations
• Clergy and religious

Please note that although unusual for some businesses, if you hire delivery drivers, traveling salespersons under certain conditions, musicians and other performers, professional models, and fellow, resident, and intern physicians, you must purchase unemployment insurance for them. Most construction workers are also included under the New York State Construction Industry Fair Pay Act.

In addition to New York state unemployment taxes, you're also responsible for paying federal unemployment taxes. The standard rate is 6% on the first $7,000 of each employee's taxable wages. The maximum tax you'll pay per employee is $420 ($7,000 x 6%).

Did you know?

When you pay SUTA, you may qualify for up to a 5.4% discount on your federal unemployment insurance taxes (FUTA). This can lower your FUTA tax rate from 6% to 0.6%.

State and Local Income Taxes

In the News:

As of 2020, state withholding allowances should no longer be reported on the IRS Form W-4. Instead, you should have a copy of Form IT-2104, Employee's Withholding Allowance Certificate for employees to sign and submit. Federal tax allowances will still need to be reported on Form W-4, however, so you should have a copy of each for employees to sign and submit during onboarding.

New York uses the same rules for income tax withholdings as for SUTA when it comes to qualifying employment, liable employers, and calculating gross wages. You even file according to the same schedule using the same form, the NYS-45.

If you are an out-of-state employer withholding taxes for an in-state employee, you are subject to all the withholding requirements. In general, NY follows the same rules as the federal government for classifying taxable income. You'll use the information on Form IT-2104 along with the New York tax tables that are updated each year to determine withholdings.

NYC and Yonkers Taxes

New York City and Yonkers also tax employees living in their areas. If in doubt as to whether or not an employee resides in a specific jurisdiction, you can look up an employee's address to see if they are considered as residing in NYC or Yonkers.

Non-resident employees sometimes pay taxes. If you have employees who do not live in New York state but they earned money from work done in New York State, you still need to withhold New York state and local taxes unless you have a bona fide office in their state. These employees use Form IT-2104.1 to determine withholdings. To learn more about residency vs non-residency tax requirements, visit the New York State government website.

Workers' Compensation Insurance

Employers are required to purchase workers' compensation insurance if they operate in New York. On average, this costs about $1.41 per $100 in wages you pay but can vary significantly depending on the line of work your business is in. For more information on workers' compensation, how much it might cost you, and where you can purchase it, check out our guide on New York Workers' Compensation.

Metropolitan Commuter Transportation Mobility Tax (MCTMT)

If you have payroll expenses within the Metropolitan Commuter Transportation District (MCTD), you are liable for the MCTMT for a calendar quarter if

1. You are required to withhold New York State income tax
2. Your payroll expense for all covered employees is more than $312,500 for that calendar quarter.

Find more information in NY Publication 420.

To see if the MCTMT tax applies to your business, confirm whether or not you're located in one of the following areas (within the MCTD):

• New York City (Manhattan, Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island)
• Rockland County
• Nassau County
• Suffolk County
• Orange County
• Putnam County
• Dutchess County
• Westchester County

If you are located in one of the areas above, check the table below to find out your MCTMT tax rate.

MCTMT Tax Rates

Minimum Wage Rules in New York

In the News:

As of December 2020, all employers in New York subject to state minimum wage laws should be paying their employees a minimum of $12.50 an hour. Any employers who opt not to comply can be charged up to 200% of the unpaid wages. Going forward, future increases are published on or before Oct. 1, so be sure to periodically check New York State's government website.

The state of New York is gradually increasing the minimum wage to $15 per hour, with $10 per hour for tipped wages. Current rates depend on which city your business operates from. If you are an employer in NYC, Long Island, or Winchester, you must pay $15 per hour. The remainder of New York will continue to increase locally each year until they reach $15 per hour as well. The Commissioner of Labor will publish annual increases for the rest of the state every Oct. 1 until the minimum of $15 per hour is reached.

The minimum wage does not apply to the following:

• Executives and administrators
• Certain professionals
• Outside salespersons
• Taxicab drivers
• Part-time babysitters
• Ministers and members of religious orders
• Volunteers, learners, apprentices, and students working in nonprofit institutions
• Students obtaining vocational experience

Please note: When you hire a new employee and set their pay rate, you'll need to provide them with a written pay notice that details the amount (hourly, salary, commission, etc.) along with the schedule on which they'll be paid, their designated payday or pay date, the address and phone number of your business location, and any deductions you may take for tips, meals, or lodging.

New York Overtime Regulations

New York follows the federal rules for exemptions concerning overtime, payable at 1.5 times regular wages for all hours worked over 40 in a workweek. For everyone else, it sets these rules:

Different Ways to Pay Employees

You can pay employees in a variety of ways, including direct deposit, paper check, cash, and payroll card. Per New York law, you cannot base an employment decision on whether or not they consent to being paid via direct deposit or payroll card—some employees don't have bank accounts, and any policy that targets them would be discriminatory in nature.

Pay Stub Laws

When you run payroll for your employees, you'll need to prepare a pay statement, i.e., a pay stub, so they have a record of their earnings. Federal law doesn't require it, but New York State does. It should include basic information, such as:

• Your company name
• The employee's name
• Pay rate
• Pay period covered
• Hours worked
• Overtime pay

If you'd like a template to make creating your own pay statements easier, download one of our free paystub templates; they're already formatted, and you can print and use them today.

Minimum Pay Frequency

If you employ manual laborers, New York requires you to pay them at least weekly. If you'd like to process their payroll less often, you'll have to apply for permission first. For all other employees, you can pay weekly, biweekly, or semimonthly, at the minimum. Federal law doesn't dictate how often you pay your workers; it only states that you must pay consistently.

If you need help selecting a pay period and scheduling pay dates, download one of our free payroll calendars to help.

Paycheck Deduction Rules

Although some states are lenient on payroll deductions as long as they don't drop an employee's pay below the minimum wage amount, New York has some strict rules. You are not allowed to deduct money from an employee's paycheck for any of the following:

• Cash shortages
• Inventory shortages
• Loss of or damage to property
• Uniforms that you require
• Tools and other equipment required for the job

You can only deduct money from employee paychecks if it's legal, both federal and state-wise and the employee authorizes you to do so.

Please note: You must get the authorization in writing or you could be penalized. Some common deductions employees request are insurance premiums, healthcare contributions, donations to charity, repayment of salary advances, repayment of prior overpayments, etc.

To learn about allowable payroll deductions—pretax vs post and how to calculate them, read our article on post and pre-tax deductions.

Final Paycheck Laws

If you ever find yourself terminating an employee in New York, you should move swiftly when sending them their last paycheck. Legally, you have until the nearest payday after the termination went into effect, to distribute without facing legal issues. And if you were managing benefits for them, you're required to notify them within five days of their termination date of the exact date their benefits will be terminated.

If the employee quits, you should still strive to pay them by their next regular pay day. However, New York doesn't have any specific laws governing this.

Accrued Paid Time Off

Neither federal nor New York State law has stringent rules on how you should handle paid time off (PTO). When an employee leaves your company, you can opt to pay it out or take it back. The caveat to this rule is that you need to have your process outlined in a policy that the employee receives at the time of hire. If you don't lay down the ground rules regarding how you will handle paying accrued time off, you will be obligated to pay it out should they have a balance when they leave the company.

New York HR Laws That Affect Payroll

New York New Hire Reporting

When you make a new hire, and preferably before you process their first paycheck, you'll need to report them to the state. New York requires you submit the new hire report within 20 days of their hire date. If you fail to do so, you can be fined $20 per employee or $450 per employee if conspiring with the employee to withhold the information. Use Form NYS-209 to report the information electronically.

Lunch and Other Break Time Requirements

Employees with shifts of more than six hours that start before 11 a.m. and continue to 2 p.m. must take an uninterrupted lunch break of at least 30 minutes between that time frame. This does not have to be a paid break. There is no other break requirement, but if you provide breaks of up to 20 minutes, you must pay it as work time—meaning it should be paid. You'll need to ensure their work and break time are properly documented using a time sheet or time clock.

As of January 2021, employers in New York have to grant employees up to 12 weeks of paid family leave—federal law allows leave, but it doesn't require it to all be paid.

Vacation and Leave

New York has no set laws for vacation or holiday PTO. Employers can set these rules however they wish. Just remember, if you state that you allow a certain number of PTO hours for the year, you are legally obligated to honor it.

Sick Leave

As an employer, you are required to provide sick leave per New York labor law.

• If you have four or fewer employees in a calendar year, you must provide each one up to 40 hours of unpaid sick leave per calendar year, and if your income was over $1 million the previous tax year, you must provide 40 hours of paid sick leave.
• If you employ 5 to 99 employees in a calendar year, you must provide each one up to 40 hours of paid sick leave per calendar year.
• If you employ 100 or more employees in a calendar year, you must provide each one up to 56 hours of paid sick leave per calendar year.

It's important that you track each employee's leave and especially sick leave so that you can prove compliance in the event of an audit. It will also make it more convenient for you to manage the employee's accrued sick time so that you can better anticipate the timing of potential future expenses.

Paid family leave

Paid family leave is time taken to bond with a newborn, care for a close relative with a serious health condition, or assist when a family member is deployed in the military. If you employ more than one person, you must get a paid family leave policy. Full-time employees (working regularly at least 20 hours per week) are eligible after 26 consecutive weeks of employment. Part-time employees are eligible after 175 days, which need not be consecutive.

State Disability Insurance

If you have one or more employees employed at least 30 days in a calendar year, you must provide temporary disability insurance. You can do this through private policy or the state insurance fund.

Did you know?

Unlike for some payroll expenses (i.e., FUTA), New York allows employers to share the cost of disability insurance with employees. If you'd prefer your business not to shoulder the cost alone, you can deduct ½ of 1% of an employee's wage up to a maximum of $60 per week. Just process payroll deductions from their paychecks each period, so you'll have the money when it's time to pay the bill.

Tip Earnings: Tips must be reported as income.

Child labor

There are child labor laws governing how you can employ minors in New York. Overall, a minor is considered anyone under the age 18, but the rules vary for different age ranges.

Some state-specific child labor laws you should know when doing business in New York are:

• Children 14–17 need working papers to hold a job in New York.
• Children 14 and 15 cannot be employed during school hours.
• Minors cannot do factory work.
• Minors 16 and 17 may work full time if not attending school.

Payroll Forms

New York has its own form for calculating state income tax withholdings, as well as for reporting other taxes. However, it uses the same form for filing income tax withholdings and SUTA.

New York Form IT-2104

New York uses a Form IT-2104, Employee's Withholding Allowance Certificate. Like the IRS Form W-4, it sets withholdings for income taxes depending on your employee's choices. Use this for calculating withholdings for NY state taxes, which differ from federal withholdings. Every employee should fill this out. There are different versions of the form for exemption requests for Native Americans, military members, those in the START-UP NY program, and other situations. Make sure your HR department is familiar with these to offer them to qualified employees.

Other New York Withholding Forms

• Form NYS-45, Quarterly Combined Withholding, Wage Reporting, and Unemployment Insurance Return : You must fill this out completely each quarter.
• Form NYS-45-ATT, Quarterly Combined Withholding, Wage Reporting, and Unemployment Insurance Return-Attachment : You must fill this out completely each quarter.
• Form MTA-305, Employer's Quarterly Metropolitan Commuter Transportation Mobility Tax Return : This is only required if you're filing MCTM taxes.
• NYS-100, New York State Employer Registration for Unemployment Insurance, Withholding, and Wage Reporting : There are different forms for agricultural workers, government entities, Indian tribes, and nonprofits.
• Form NYS-209, Instructions for Electronic Media Reporting of Employees Hired or Rehired

Federal Payroll Forms

• W-4 Form : To help employers calculate taxes to withhold from employee paychecks
• W-2 Form : To report total annual wages earned (one per employee)
• W-3 Form : To report total wages and taxes for all employees
• Form 940 : To report and calculate unemployment taxes due to the IRS
• Form 941 : To file quarterly income and FICA taxes withheld from paychecks
• Form 944 : To report annual income and FICA taxes withheld from paychecks
• 1099 Forms : To provide non-employee pay information that helps the IRS collect taxes on contract work

New York Payroll Tax Resources and Sources

Employer's Guide to Unemployment Insurance, Wage Reporting, and Withholding Tax : This booklet contains just about everything you need to know about your rights, responsibilities, and filing requirements for payroll, withholdings, and unemployment insurance.

New York Business Express website (NYBE) : This is where you register as a new employer. Also, get information on licensing, regulations, incentives, and other business needs.

Department of Taxation and Finance : The website has multiple menus for finding information on any aspect of taxes, including demo videos, articles, and forms. The search bar works pretty well for finding topics quickly.

For general information on payroll laws, check out our guide on payroll compliance.

Bottom Line

There's a lot to consider when doing payroll in New York because of the complexity of the taxes. Not only does it have state income taxes and SUTA, but it also has some local income taxes. Even non-resident employees must pay taxes, which means you need to calculate withholdings differently based on where employees live and where your business is located. We touched on the basics in this article, but the Form NYS-50 gives complete details.

If you find New York payroll to be too tedious, consider using a payroll software like Gusto to help. It keeps track of all taxes—both employer and employee—and ensures you pay the right rates. If ever wrong and you're penalized by a tax agency, Gusto will foot the bill. You can also pay employees with direct deposit for free and offer health insurance benefits. Try it free for 30 days.

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Source: https://fitsmallbusiness.com/how-to-payroll-new-york-state/

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