Tax laws vary across states, but it’s crucial for business owners to know how to manage payroll according to the laws of the state they operate in. When it comes to payroll in Connecticut, it’s imperative for employers to have a solid grasp of the state’s unique payroll and taxation regulations to ensure they stay in compliance. However, the multitude and complexities of stipulations and guidelines can be quite daunting.
Within this guide, we’ll offer you an overview of Connecticut’s unique set of payroll and tax requirements, which require careful consideration and expertise. We’ll delve into a range of topics, including state income tax rates and wage and hour laws, equipping you with the knowledge and tools required to ensure the smooth operation of your payroll in Connecticut.
This Article Covers
Laws That Affect Payroll Procedures in Connecticut
Worker Classifications in Connecticut
Payroll Forms and Relevant Bodies in Connecticut
Applicable Taxes in Connecticut
- Employer Contributions
- Withheld from Employee’s Wages
- Additional Relevant Subtractions to Withhold on Behalf of Employees
Key Pay Elements That Impact Payroll in Connecticut
Step-by-Step Guide to Payroll in Connecticut
Laws That Affect Payroll Procedures in Connecticut
In the space of payroll procedures, certain legal regulations govern how employees are compensated and businesses must adhere to these rules.
Connecticut Laws
- Connecticut Labor Code: The Connecticut Labor Code addresses wage payments, sick leave, and workers’ compensation. It’s important to note that the laws in Connecticut also cite federal laws like the Federal Labor Standards Act (FLSA) for certain regulations.
- Minimum Wage: Connecticut’s minimum wage is currently set at $15.69 per hour. The state’s minimum wage does increase progressively. Employers in Connecticut must pay their employees at least the state’s minimum wage.
- Overtime Pay: In Connecticut, employees are entitled to overtime pay when they work more than 40 hours in a workweek. Overtime pay is typically one and a half times the employee’s regular rate of pay.
- Paid Sick Leave: Connecticut labor laws require certain employers to provide paid sick leave to their employees. The amount of sick leave an employee can accrue and the conditions for its use vary based on the size of the employer and other factors. Employers are required to inform their employees of their rights under these laws.
- Family and Medical Leave: Connecticut also has regulations governing family and medical leave. Eligible employees are entitled to up to 12 weeks of unpaid, job-protected leave for specific family and medical reasons, such as the birth of a child or a serious health condition.
- Workers’ Compensation: Connecticut law mandates that most employers carry workers’ compensation insurance. Workers’ compensation benefits are available to employees who suffer job-related injuries or illnesses. These benefits cover medical expenses and a portion of lost wages.
- Wage Payment and Record-Keeping: Employers in Connecticut are required to provide employees with regular pay stubs that include detailed information about their wages, deductions, and other pertinent details. Keeping accurate wage and hour records is essential to ensure compliance with state and federal labor laws.
- Final Paychecks: When an employee leaves their job, whether voluntarily or involuntarily, they are entitled to receive their final paycheck in a timely manner. Connecticut law outlines specific requirements for the timing and content of final paychecks.
Federal Laws
- Fair Labor Standards Act: The FLSA is an essential federal law that sets laws on wages and overtime pay. It also outlines regulations on child labor, employee classification, recordkeeping of employee work hours, and more.
- Family and Medical Leave Act: The FMLA regulates laws for leave. Eligible employees can take up to 12 weeks of unpaid leave for reasons like childbirth, adoption, or caring for a family member with a serious health condition.
- Federal Insurance Contributions Act (FICA) Tax: Employers and employees are both required to pay FICA taxes. Businesses and workers contribute 6.2 percent of their earnings up to $132,900 for Social Security tax. The Medicare tax rate is 1.45 percent of a business’s and a worker’s yearly income. These rates may change annually according to IRS guidelines, so it’s essential to keep track of them.
HR Laws
- New Hire Reporting: In Connecticut, it is a legal obligation for employers to promptly inform the relevant department within seven days of hiring, recalling, or rehiring a new employee. The notification should include specific information about each newly hired, recalled, or rehired individual, such as their complete name, address, social security number, and employment start date. Furthermore, the employer must provide their own details, including their name, address, and both state and federal identification numbers.
- Posting Requirements: The State of Connecticut mandates that all businesses operating within the state and employing workers must adhere to specific posting requirements. Employers are required to display labor law posters in the workplace. These posters cover various crucial topics, including minimum wage regulations, health and safety guidelines, and other important labor laws, ensuring that employees are informed of their rights and obligations under Connecticut labor laws. Failure to comply with these posting requirements can result in legal consequences for the employer.
Worker Classifications in Connecticut
Employees and Independent Contractors
In Connecticut, misclassification occurs when an employer incorrectly labels a worker as an independent contractor instead of an employee. While there are instances where misclassification can happen unintentionally, it is often used to curve certain labor laws. Determining a worker’s status can be complex. For instance, the Connecticut Department of Revenue Services follows Common Law Rules, while the Connecticut Department of Labor’s Unemployment Compensation Division utilizes the “ABC” test.
The ABC Test
The ABC Test evaluates a worker’s employment status based on three key factors denoted as A, B, and C. To qualify as an “independent contractor,” an individual must meet all of the following conditions:
- The person must have the liberty to work independently, free from significant supervision, both as specified in their employment agreement and in actual practice.
- The services provided by the individual should occur either beyond the usual scope of the employer’s business operations or away from the employer’s physical premises.
- The individual must be consistently involved in a distinct and self-sustaining trade, profession, or business that aligns with the nature of the service they offer.
It’s important to note that for factor A, the presence of the right to control and direct the service, even when it goes unused, will not be considered satisfied if retained by the employer. Additionally, creating a business solely in response to an opportunity as an independent contractor will not meet the criteria for being “customarily engaged” or “independently established” in test C.
Common-Law Rules in Connecticut
According to common law rules, an employer-employee relationship exists when the business that’s directing the services has the right to control not just the end result, but also the methods and details of how that result is achieved. There are three main categories used to determine worker classification: behavioral control, financial control, and the relationship between the parties.
- Behavioral Control: This criteria is about who gets to say how the worker does the job. It includes things like when, where, and how the work is done, what tools are used, hiring help, getting supplies, and deciding the order and method of work.
- Financial Control: This criteria looks at the money side of things. It includes factors like the worker’s investment in tools, getting paid back for work expenses, whether the worker can offer their services to others, how they’re paid, and if they can make a profit or loss.
- Relationship of the Parties: This criteria is about what the parties involved intend. It includes having a written agreement, the type of tax forms the worker receives, whether the worker is a recognized business entity, if the worker gets typical employee benefits, under what conditions the worker can end the relationship, how long the relationship lasts, and whether the worker’s services are a big part of the company’s regular business.
To learn more about the rights of salaried and hourly employees, you can read our guides on your rights as a salaried employee in Connecticut, and your rights as an hourly employee in Connecticut.
Payroll Forms and Relevant Bodies in Connecticut
Effectively handling payroll in Connecticut means following several state and federal rules, which often include filling out necessary payroll forms. In this section, we’ll look at the important forms and the relevant authorities in Connecticut that employers should know to stay compliant and manage payroll responsibilities well.
Connecticut Payroll Forms
- CT-W4: This form is used by employees to specify their state income tax withholding preferences.
- CT-941: Employers use this form to report state income tax withheld from employees and reconcile the amounts on a quarterly basis.
- CT-W3: This is an Annual State Tax Reconciliation form that summarizes the year’s worth of state income tax withholdings.
- CT-945: The Yearly Tax Reconciliation (Non-Payroll) form is for employers to report state income tax withheld for non-payroll payments, such as those to independent contractors.
- CT-941X: This form must be submitted if there are errors on previously submitted CT-941 forms.
- CT-941H: This is the Household Employer Tax Form. It is for household employers to report and pay withholding taxes for domestic help.
Federal Payroll Forms
- W-3 Form: Summarizes the combined pay and taxes for all employees.
- Form 940: Reports owed unemployment taxes to the IRS.
- Form 941: This form is used to report income and FICA tax deductions from paychecks on a quarterly basis.
- W-4 Form: This form allows employers to determine the correct tax withholding for their employees.
- W-2 Form: This form serves the purpose of displaying the total yearly earnings of each employee.
- Form 944: Reports annual income and FICA taxes withheld from paychecks.
- 1099 Forms: Provide contractors with the necessary information to calculate the taxes they owe the IRS based on their earnings.
Federal and Connecticut Payroll/ Tax Bodies
- Internal Revenue Service (IRS): The IRS is in charge of collecting federal income taxes and enforcing tax laws, including withholding federal income tax, Social Security tax, and Medicare tax from employees’ paychecks.
- Social Security Administration (SSA): The SSA administers the Social Security program, which provides retirement and disability benefits. Both employers and employees contribute to Social Security through payroll taxes.
- Centers for Medicare & Medicaid Services (CMS): Centers for Medicare and Medicaid Services oversees the Medicare program, which offers healthcare coverage to eligible individuals. Employers and employees also contribute to Medicare through payroll taxes.
- Connecticut Department of Revenue Services (DRS): The Connecticut Department of Revenue Services is responsible for administering state tax laws, encompassing income tax and sales tax. Employers in Connecticut must withhold and remit state income tax from employees’ paychecks.
- Connecticut Department of Labor (CTDOL): CTDOL is the authority that oversees labor laws, wage and hour regulations, and employment-related issues in the state, ensuring employers’ compliance with state labor laws.
- Connecticut Department of Social Services (DSS): The Connecticut Department of Social Services administers state programs pertaining to social services, such as Medicaid and other assistance programs.
- Connecticut Department of Economic and Community Development (DECD): The DECD is involved in certain economic development initiatives and tax incentives that can affect employers in the state.
Employers in Connecticut must comply with the regulations stipulated by both federal and state agencies. This includes accurately withholding and remitting federal income tax, Social Security, and Medicare at the federal level, as well as state income tax and other applicable state taxes.
Applicable Taxes in Connecticut
Employer Contributions
Federal Unemployment Tax Act (FUTA): In Connecticut, the amount that employers contribute to the Federal Unemployment Tax Act (FUTA) can change from year to year. In 2022, employers had to pay a bit more, up to $21 per full-time worker, due to a 0.3% increase in FUTA tax. To help employers cope with this increase in 2023, the state government passed a law called Public Act 22-118. This law temporarily reduces the state unemployment tax rates by 0.2% for the year 2023. In 2023, all employers, including new ones, will see a 0.2% reduction in their tax rates. The new employer rate drops from 3.0% to 2.8%, and the fund solvency tax goes down from 1.4% to 1.2%. So, how much employers contribute to FUTA in Connecticut depends on these temporary changes made to ease the impact of federal tax increases. Employers can get the latest information from the Connecticut Department of Labor or a tax professional.
Withheld from Employee’s Wages
- Connecticut Income Taxes: Connecticut has a progressive income tax system with varying tax rates based on income levels. Connecticut has different tax rates for individuals, ranging from 3.00% to 6.99%, and a 7.50% tax rate for businesses. There’s also a 6.35% sales tax.
- Connecticut Workers’ Compensation: Workers’ compensation laws in Connecticut require employers with at least one employee to provide workers’ compensation insurance. The specific requirements, coverage costs, and other details may vary, so it’s important to consult Connecticut’s Department of Labor or a legal expert for the latest information.
- Social Security (FICA) Withholding in Connecticut: Social Security and Medicare withholding follow federal rules set by the Social Security Administration. As of my last update, the Social Security withholding rate was 6.2% on income up to a certain limit, and the Medicare withholding rate was 1.45%. The specific income limit and rates may have changed since then.
Additional Relevant Subtractions to Withhold on Behalf of Employees
The federal Fair Labor Standards Act (FLSA) governs how employers can deduct money from employees’ paychecks, and these deductions must adhere to specific legal requirements. In addition to taxes, allowable deductions encompass various scenarios, such as deducting pay for personal absences, excluding sickness or disability cases, provided employees have given their consent.
Deductions for sickness or disability-related absences require a valid compensation plan to address lost wages. Furthermore, employers can make deductions for jury fees, witness fees, or temporary military duty pay. Safety rule violations may result in penalties, allowing for corresponding deductions when imposed in good faith. Disciplinary suspensions lasting a day or more can also lead to deductions, provided they are genuinely applied as a consequence for violating workplace rules in good faith.
Employers may also deduct money for unpaid leave taken under the Federal Family and Medical Leave Act, which offers job-protected leave for specified family and medical reasons. These deductions are guided by legal provisions and should be implemented in accordance with the law.
Key Pay Elements That Impact Payroll in Connecticut
Minimum Wage
The prevailing minimum wage in Connecticut stands at $15.69 per hour for non-tipped employees, whereas tipped employees who work in restaurants and hotels earn a minimum wage of $6.38, while tipped bartenders are entitled to a minimum wage of $8.23.
Overtime
Regarding overtime regulations, Connecticut adheres to the overtime laws outlined in the federal Fair Labor Standards Act (FLSA). The fundamental guideline is that if an employee works over 40 hours within a workweek, they should receive overtime compensation at a rate equal to 1.5 times their standard hourly wage. In the context of Connecticut’s 2023 minimum wage, set at $15.69 per hour, this would translate to an overtime rate of $23.54 per hour.
Explore detailed insights on overtime rights in our specialized article, What are my overtime rights in Connecticut?
Workers’ Compensation Insurance
The Workers’ Compensation Act in Connecticut, specifically detailed in Chapter 568 of the Connecticut General Statutes, is a set of rules that focuses on issues related to workplace injuries and diseases. It explains who can receive benefits if they get hurt or sick at work, the insurance requirements for providing these benefits, the best way to give these benefits to eligible employees, how to resolve disputes between different parties involved, and the rights and duties of everyone within Connecticut’s workers’ compensation system.
Pay Stub Laws
In Connecticut, the state aligns with federal law when it comes to wage payment methods and pay frequency. Therefore, employers in Connecticut are generally obligated to follow the wage payment and frequency regulations outlined in the federal Fair Labor Standards Act (FLSA).
According to the FLSA, employers are obligated to maintain precise records of employees’ work hours and the wages they receive. It’s worth noting, however, that the FLSA does not explicitly stipulate that employers must furnish pay stubs to employees, which are also known as wage statements or paychecks.
Employers may choose to provide pay stubs or wage statements based on their company policies or to meet specific state requirements.
Wage Garnishment
Wage garnishment laws in Connecticut, as in numerous other states, are subject to regulation by both federal and state statutes:
- In accordance with the Consumer Credit Protection Act (CCPA), a federal law, there exists a limit on the maximum amount that can be withheld from an individual’s earnings, typically capping it at 25% of disposable income.
- Various types of debts, such as child support, alimony, student loans, and unpaid taxes, can be subjected to garnishment. However, for debts like credit card balances or medical expenses, a court judgment is usually required before garnishment is initiated.
- Before initiating the garnishment process, creditors in Connecticut are obligated to provide notice to the debtor, who retains the right to contest the debt or request a hearing.
Final Paycheck
In Connecticut, when an employee resigns, their employer must pay their full wages by the next regular payday. In the event of an employer-initiated termination, the employer is obligated to settle the employee’s complete wages within the following business day. Furthermore, if an employee’s work is temporarily disrupted due to a labor dispute or if they are laid off for any reason, the employer must promptly disburse the employee’s earned wages in full by the next designated payday.
Step-by-Step Guide to Payroll in Connecticut
In Connecticut, there are specific laws and procedures that need to be followed regarding payroll. Here, you’ll find steps that simplify the payroll process in Connecticut.
- Understanding Payroll Rules: It’s crucial for businesses to grasp the specific rules that pertain to your business. These rules can differ based on factors like your industry, the number of employees, and worker types. Familiarize yourself with Connecticut labor laws and federal payroll regulations affecting your operations.
- Register Your Business as an Employer with the IRS: This involves obtaining your Employer Identification Number (EIN) and setting up an account within the Electronic Federal Tax Payment System (EFTPS). For new businesses, it is important to secure an EIN before embarking on the creation of a customized, systematic payroll process flowchart. The EIN, comprising nine digits, serves as a way for the Internal Revenue Service (IRS) to identify and monitor a company’s tax-related operations. You can easily apply for an EIN online using Form SS-4.
- Registering with the State of Connecticut: If your business operates in Connecticut, it’s essential to follow the relevant state laws and regulations. New businesses can initiate the registration process through the Connecticut Secretary of State’s official website. Furthermore, if your business employs workers in Connecticut, you should ensure that you comply with Connecticut state employment laws.
- Determining Employee Classification: It’s imperative to correctly categorize your workers in Connecticut as either employees or independent contractors. This accurate classification is crucial because it has significant implications for tax reporting and wage regulations in accordance with Connecticut state law. Misclassification can result in legal complications and financial penalties. It’s advisable to use the Common Law Test as a reference to determine the appropriate classification.
- Collecting Employee Payroll Forms: When hiring employees in Connecticut, it’s essential to collect specific forms during the onboarding process. Employees must complete the I-9 verification and as well the W-4 form, which is referred to as the Employee’s Withholding Tax Exemption Certificate.
- Tracking Time and Attendance: You can use digital tools for accurate tracking of work hours, overtime, breaks, and leave entitlements. This allows you to implement a thorough system for tracking employee time and attendance. Utilize digital tools like time and attendance software to enhance accuracy.
- Establishing a Payroll Cycle: Set up consistent pay periods, ensuring compliance with state regulations.
- Filing Federal Payroll Taxes: Adhere to IRS guidelines for federal taxes, including unemployment tax. Deposit employment taxes as per your assigned schedule, either monthly or semiweekly, as determined by the IRS.
- Maintaining and Archiving Payroll Records: The records of all employees must be kept, even former ones, for a minimum period of three years. Employers must make sure these records are available for inspection by the Connecticut Department of Labor (DOL) if the need arises.
- Processing Annual Payroll Reports: Complete payroll reports each year. This includes W-2 Forms and 1099 Forms. These forms must be given to employees no later than January 31 of the following year.
Final Thoughts
Managing payroll in Connecticut comes with a range of regulations and guidelines. It is imperative to approach it with caution and precision.
Nonetheless, there is no need to approach the payroll process with no knowledge. A wide range of tools and resources are available to assist you in simplifying the payroll process for your business. If you seek to boost payroll efficiency in your business, you may want to explore our compilation of the top 6 applications tailored to streamline payroll duties in the United States. Additionally, if you already have an established system in place, our list of ten tips to enhance your payroll procedures within the United States will help you do just that..
By adhering to established best practices and making effective use of the available tools, you can confidently navigate the intricacies of payroll management in Alaska.
Important Cautionary Note
This content is provided for informational purposes only. While we make every effort to ensure the accuracy of the information presented, we cannot guarantee that it is free of errors or omissions. Users are advised to independently verify any critical information and should not solely rely on the content provided.
