Operational Gaze:
How to Run Payroll in North Dakota?

April 11th 2024

Running payroll in North Dakota can be a straightforward process, but it requires careful attention to detail and adherence to state-specific regulations. This guide is designed to help both employers and employees navigate the complexities of payroll management in North Dakota. From understanding tax obligations to accurate wage calculations, we’ll cover the essential steps and legal requirements, ensuring your payroll is both compliant and efficient.

This Article Covers

Laws That Affect Payroll Procedures in North Dakota
Worker Classifications in North Dakota
Payroll Forms and Relevant Bodies in North Dakota
Applicable Taxes in North Dakota
Key Pay Elements That Impact Payroll in North Dakota
Step-by-Step Guide to Payroll in North Dakota

Laws That Affect Payroll Procedures in North Dakota

North Dakota Laws

  • Minimum Wage: In North Dakota, the minimum wage is set at $7.25 per hour, matching the federal standard. On the other hand, tipped employees are entitled to a minimum of $4.86 per hour, provided they earn at least the federal minimum wage of $7.25 per hour. When tips combined with wages do not reach the standard minimum wage, employers are required to compensate for the shortfall, ensuring that employees’ total earnings align with the state’s minimum wage requirements.
  • Overtime: State law mandates overtime pay for employees working over 40 hours in a workweek, barring certain exemptions. This aligns with federal regulations, ensuring that employees are fairly compensated for extended working hours. The overtime pay rate typically exceeds the regular pay rate, reflecting the additional effort and time contributed by employees.
  • Prevailing Wages: While North Dakota lacks a specific wage law, federal prevailing wage rates may apply for government or government-funded construction projects or certain services​​.
  • Meals and Breaks: Employers must provide an unpaid 30-minute meal break for shifts exceeding five hours, assuming two or more employees are on duty. Breaks shorter than 30 minutes must be compensated to ensure employees have sufficient rest during the workday.
  • Nursing Mother Breaks: While North Dakota does not mandate breaks for nursing mothers, federal law requires reasonable break time for breastfeeding mothers up to one year after childbirth. Employers must also provide a private space, not a bathroom, for milk expression. This act supports the health and privacy needs of working, nursing mothers in the workplace.
  • Vacation Leave: Employers in North Dakota are not required by law to provide vacation leave, paid or unpaid. If provided, employers must follow established policies. Upon termination, employers may have to pay for accrued vacation unless stated otherwise. This allows employers flexibility in offering vacation benefits while ensuring employees’ rights are respected.
  • Sick Leave: There is no mandate for paid or unpaid sick leave in North Dakota, although employers that offer it must adhere to policies and the federal Family and Medical Leave Act​​.
  • Holiday Leave: There’s no requirement for private employers in North Dakota to offer holiday leave, paid or unpaid. However, employees in the state are not entitled to premium pay for holidays unless it constitutes overtime. Employers must comply with overtime laws, ensuring employees are fairly compensated when holiday work hours exceed normal working hours.
  • Jury Duty Leave: Employers in North Dakota are not mandated to pay jury duty leave. However, they are prohibited from penalizing employees for attending such. This law respects the civic responsibility of jury service while protecting employees from workplace repercussions.
  • Voting Leave: While North Dakota encourages voting leave, there are no specific laws enforcing it. Employers may offer time off based on work schedules and poll timings​​.
  • Severance Pay: Severance pay is not a legal requirement in North Dakota. If employers choose to offer it, they must abide by the established company  policies or employment contract terms. 
  • Unemployment: To qualify for unemployment benefits in North Dakota, individuals must be ready and able to work, actively seeking employment, and unemployed through no fault of their own. They must also have earned a minimum amount before unemployment. These criteria ensure that support is provided to those actively contributing to and impacted by the job market.

Federal Laws

As compared to state-mandated laws, federal laws provide a nationwide framework for payroll procedures that must be adhered to by employers in North Dakota and across the United States.

  • Fair Labor Standards Act (FLSA): The FLSA is a federal law that sets standards for minimum wage, overtime pay, recordkeeping, and youth employment. As of the last update, the federal minimum wage is $7.25 per hour, although employers in North Dakota must comply if state minimum wage laws dictate a higher amount. Overtime must be paid at a rate of at least one and one-half times the employee’s regular rate for hours worked beyond 40 in a workweek.
  • Family and Medical Leave Act (FMLA): The FMLA sets out provisions for leave entitlement. Eligible employees have the right to take up to 12 weeks of unpaid leave for events such as childbirth, adoption, or the care of a family member with a serious health condition.
  • Federal Insurance Contributions Act (FICA): The FICA requires that employers deduct Social Security and Medicare taxes from paychecks and also make a matching contribution. As of the current information available, the Social Security tax rate was 6.2% for the employer and 6.2% for the employee on earnings up to the applicable taxable maximum amount. Medicare tax was 1.45% each for both employer and employee, with an additional 0.9% for high earners.
  • Federal Unemployment Tax Act (FUTA): FUTA imposes a federal payroll tax on employers to help fund state unemployment agencies. Employers pay this tax annually, and it is calculated at 6% of the first $7,000 paid to each employee as wages during the fiscal year. Significantly, employers can receive a credit of up to 5.4% for making timely and full payments of state unemployment taxes, effectively reducing the FUTA rate to a more manageable 0.6%.

HR Laws

  • Income Tax Credit: House Bill 1383, effective from January 1, 2023, allows a tax credit for compensation paid to an apprentice. Taxpayers can claim a credit against income tax liability for compensation paid to apprentices or registered apprentice electricians employed in the state​​.
  • Family Medical Leave: Senate Bill 2198, effective from August 1, 2023, extends family medical leave for state employees. It includes care for a child, spouse, or parent who is a service member or veteran with a serious injury or illness as defined by the U.S. Department of Labor​​.
  • Definition of a Veteran: House Bill 1222, effective from August 1, 2023, mandates that applicants claiming veterans’ preference must provide a DD-214 form or certification from their unit command to demonstrate eligibility for discharge under honorable conditions​​.
  • Labor Exceptions for Minors: Senate Bill 2132, effective from April 12, 2023, provides targeted exceptions for minors employed in sports-attendant services at professional sporting events. This bill clearly outlines permissible duties and time limitations, ensuring appropriate working conditions and safeguarding the rights and welfare of minors engaged in these roles.
  • Minors Working in Hazardous Occupations: Senate Bill 2170, effective from August 1, 2023, permits minors of a certain age to work in hazardous occupations if they are in a registered apprenticeship program or an approved career and technical education program.
  • Vaccination Status: Senate Bill 2274, effective from August 1, 2023, prohibits state entities and their subdivisions from requiring documentation of an individual’s COVID-19 vaccination status or any vaccine under emergency use authorization for access to services or property.

Worker Classifications in North Dakota

Employees and Independent Contractors

In North Dakota, classifying workers as either employees or independent contractors is essential. For employees, business owners are required to withhold income taxes and pay Social Security, Medicare, and unemployment taxes. In contrast, these withholdings are not necessary for independent contractors. This distinction carries significant tax and legal implications for both employers and workers, affecting their financial and operational responsibilities.

Common Law

North Dakota courts apply the “Common Law” test to determine a worker’s status, particularly in the context of unemployment compensation. This test involves twenty factors, including instructions, training, integration, services rendered personally, hiring, supervising, set hours of work, and payment methods. These factors help assess whether an individual is an employee or an independent contractor; each factor varies depending on the occupation and context​​.

Right to Control

The “Right to Control” test is part of the common law test used in North Dakota to classify workers. It includes factors like the degree of instruction, the provision of training, and whether services must be rendered personally. Other considerations include who sets the work hours, whether the work is performed on the employer’s premises, and how payment is made (by hour, week, or month). This test helps determine the degree of control an employer has over a worker, which is a key aspect in differentiating between an employee and an independent contractor.

To learn more about the rights of salaried and hourly employees, read our guides on your rights as a salaried employee in North Dakota and your rights as an hourly employee in North Dakota.

Payroll Forms and Relevant Bodies in North Dakota

North Dakota Payroll Forms

  • Form 306 – Income Tax Withholding Return: Required for all North Dakota employers, Form 306 records the state income tax withheld from employees’ pay. It’s a crucial document for payroll processing, ensuring that employers accurately report and remit withheld taxes. This form upholds the integrity of state tax collection and assists in maintaining transparent and compliant financial records, aligning with North Dakota’s tax withholding laws and regulations.
  • Form 307 – North Dakota Transmittal of Wage and Tax Statements: Form 307 plays a vital role in tax administration by accompanying W-2 forms sent to the state. It aggregates the yearly earnings and tax details of employees, providing a consolidated view of wage information. This form streamlines the state’s review and processing of employee income data, ensuring efficient and accurate tax record management for both employers and state authorities.
  • Form NDW-M – Exemption from Withholding for a Qualifying Spouse of a U.S. Armed Forces Member: This form is a key provision for military families in North Dakota. It permits spouses of U.S. Armed Forces in the state to apply for a withholding tax exemption. It addresses the circumstances of military households, offering financial relief by recognizing the transient nature of military service and providing a tax respite aligned with these conditions.
  • Form NDW-R – Reciprocity Exemption from Withholding for Qualifying Minnesota and Montana Residents: Form NDW-R caters to Minnesota and Montana residents employed in North Dakota, enabling them to claim an exemption from North Dakota’s state income tax withholding. This form is a result of reciprocity agreements designed to simplify tax obligations for cross-border workers. It facilitates financial ease for those living in one state and working in another, preventing double taxation and streamlining their tax reporting duties.

Federal Payroll Forms

Alongside North Dakota-specific documentation, federal payroll forms are equally important:

  • Form W-4 (Employee’s Withholding Certificate): The Form W-4, or Employee’s Withholding Certificate, is a federal document that employees across the United States fill out to inform employers about how much federal income tax should be withheld from the wages. The Form W-4 takes into account various factors like marital status, dependents, and additional income to tailor the withholding to the employee’s unique tax situation. With periodic updates, especially after major life events or changes in financial circumstances, the W-4 ensures that employees neither overpay nor underpay the federal income taxes throughout the year.
  • Form W-2 (Wage and Tax Statement): Employers use the Form W-2, known as the Wage and Tax Statement, to report the annual wages paid to each of their employees and the specific amount of taxes withheld. This federal form, issued to every employee before the end of January each year, is vital for individuals when preparing their personal income tax returns. For the employee, it offers a clear summary of their earnings and tax withholdings, while for the IRS, it serves as a record of the individual’s employment-related earnings and tax obligations.
  • Form W-3 (Transmittal of Wage and Tax Statements): The Form W-3 is basically a document used by employers to submit the total of all W-2 forms to the Social Security Administration. This form summarizes the total earnings, Social Security wages, Medicare wages, and withholding for all employees for the year. The W-3, which must accompany the W-2 forms, is an essential tool for the SSA to verify an employee’s income and tax information.
  • Form 940 (Federal Unemployment Tax Act Return): Form 940 is a federal form that employers utilize to report annual Federal Unemployment Tax Act (FUTA) tax. This tax provides funds for state unemployment agencies and supports unemployed workers. The form calculates the employer’s federal unemployment tax liability, considering any state unemployment tax they’ve already paid. By accurately completing and submitting this form, employers contribute to a system that offers financial support to individuals during periods of joblessness.
  • Form 941 (Employer’s Quarterly Federal Tax Return): Used by employers, Form 941, titled the Employer’s Quarterly Federal Tax Return, reports the wages they’ve paid and the corresponding taxes withheld every quarter. It captures details related to federal income tax, Social Security, and Medicare withholdings. By submitting this form quarterly, employers maintain a consistent record with the IRS, ensuring they meet tax obligations as required.
  • Form 944 (Employer’s Annual Federal Tax Return): Designed for smaller employers, the Form 944 allows them to report income and FICA taxes withheld from employees’ paychecks just once a year instead of quarterly. This form simplifies the reporting process for eligible small businesses by reducing the number of times they must submit tax withholding information, easing the administrative burden and allowing them to focus on running their business.
  • Form 1099 (Miscellaneous Income): The 1099 forms are a series of documents the IRS uses to account for various types of non-employment income. There are many different types of 1099 forms, but one of the most common is the 1099-MISC, which is given to independent contractors or freelancers to report payments made to them for services rendered in the course of trade or business. This form is critical for the IRS to track income that might otherwise go unreported and for contractors to accurately report their income and calculate the taxes.

Federal and North Dakota Payroll/Tax Bodies

  • North Dakota Office of State Tax Commissioner: This office administers tax laws and collects tax revenues. It handles state income taxes for individuals and businesses, sales tax, and other state-level taxes. Employers must adhere to these tax regulations for withholding and remitting employee taxes. This body provides guidance on state tax laws, ensuring compliance and assisting with tax-related queries for both employers and employees in North Dakota.
  • North Dakota Workforce Safety & Insurance (WSI): The WSI is responsible for administering the state’s workers’ compensation system. Employers are required to provide WSI coverage, offering protection to employees in case of work-related injuries or illnesses. This organization ensures fair handling of claims, providing necessary medical and wage-loss benefits. WSI also focuses on workplace safety initiatives to reduce accidents and injuries.
  • North Dakota Department of Labor and Human Rights: This department enforces labor laws in North Dakota, ensuring fair employment practices and compliance with state labor regulations. It oversees minimum wage laws, wage and hour laws, and anti-discrimination statutes. The department is pivotal for effectively resolving labor disputes and providing comprehensive resources for both employers and employees regarding labor rights. 
  • North Dakota Unemployment Insurance Program: Managed by Job Service North Dakota, this vital program provides temporary financial assistance to eligible individuals who are unemployed through no fault of their own. It is funded by employer taxes. Employers must comply with the state’s unemployment insurance tax requirements, including accurate reporting and timely contribution obligations. This program serves as a critical safety net, helping maintain economic stability for workers during challenging periods of unemployment.
  • Internal Revenue Service (IRS): The IRS stands as the United States’ primary federal tax authority. Its mandate covers the vast spectrum of federal tax matters, inclusive of payroll taxes. By providing regulatory guidelines, tax codes, and essential resources, the IRS facilitates nationwide tax compliance. It is important to note that both employers and employees rely on the IRS’s directives to understand their federal tax obligations and ensure adherence.
  • U.S. Department of Labor (DOL): Believe it or not, the U.S. DOL has a broad role, impacting various facets of employment across the nation. Among its chief responsibilities are the formulation and enforcement of wage and hour standards. The DOL ensures fair labor practices, safeguards employee rights, and fosters a balanced work environment. This guidance assists employers in aligning the operations with federal employment norms and standards.
  • Social Security Administration (SSA): The Social Security Administration (SSA) runs programs for retirement, disability, survivor benefits, and family support. They also assist people in signing up for Medicare. The SSA is also the government body responsible for issuing Social Security Numbers— crucial for employment, finances, and accessing government services.
  • Wage and Hour Division (WHD): The WHD is a part of the U.S. DOL, whose main job is to ensure employers follow labor standards to protect workers’ rights. The WHD enforces laws like the Fair Labor Standards Act (FLSA), which covers things like minimum wage, overtime pay, recordkeeping, and child labor rules. It also enforces other laws like the Migrant and Seasonal Agricultural Worker Protection Act, Employee Polygraph Protection Act, and the FMLA.

Applicable Taxes in North Dakota

State Taxes

  • North Dakota State Income Tax: North Dakota imposes a progressive state income tax on individual earnings, with rates varying based on income levels. Employers are responsible for withholding these taxes from employee wages and remitting them to the state. This tax is crucial for funding state government operations, including education, healthcare, and infrastructure. 
  • North Dakota Sales and Use Tax: Sales tax is levied on most retail sales and certain services in North Dakota. Additionally, a use tax applies to items bought outside the state but used within North Dakota. Businesses actively selling goods or services must collect and accurately remit this tax. This revenue is vital for state and local budgets. Employers should be aware of specific exemptions and detailed rules, like those for online and out-of-state sales.
  • North Dakota Property Tax: Property tax in North Dakota is primarily a local tax, but it’s vital for state residents and businesses. It’s based on the assessed value of real and personal property. This tax funds local services like schools, roads, and emergency services. Businesses owning property must pay this tax, and it’s important for them to understand assessment processes and potential exemptions to manage their financial obligations effectively.
  • North Dakota Unemployment Insurance Tax: This employer-funded tax supports the North Dakota Unemployment Insurance Program (SUTA, SUI, UI). It provides critical temporary financial assistance to workers who lose their jobs. The tax rate varies based on an employer’s history of claims and overall employment stability. Employers must regularly report wages and pay this tax, ensuring they contribute appropriately to this essential safety net, which aids in stabilizing the state’s workforce and economy during periods of joblessness.

Federal Taxes

  • Federal Income Tax: Employers are obligated to withhold federal income tax from employees’ paychecks. The amount withheld is determined by the information the employee furnishes on Form W-4 and is calculated according to the IRS-provided tax tables. This tax is progressive, with the applicable rate escalating as the employee’s taxable income increases.
  • Social Security and Medicare Taxes (FICA): Both employers and employees are mandated to contribute to Social Security and Medicare through the Federal Insurance Contributions Act (FICA) tax. Employers are responsible for accurately withholding the specified amount from their employees’ wages and also for contributing a corresponding matching amount.
  • Federal Unemployment Tax Act (FUTA): Employers pay this federal tax separately from other taxes, and it is not withheld from employees’ wages. FUTA, working in conjunction with the state unemployment system, provides critical funds for workers who are unemployed.

Key Pay Elements That Impact Payroll in North Dakota

Minimum Wage

In North Dakota, the minimum wage is set to mirror the federal minimum wage, currently at $7.25 per hour. This rate applies to most employees, with some exceptions like tipped employees, who have a different minimum wage calculation. Employers must ensure they comply with this standard. Failure to do so can lead to penalties. It’s essential for businesses to stay updated on any changes to ensure payroll practices remain compliant with state law.

Overtime

Overtime in North Dakota is governed by both state and federal laws. Employees are entitled to one and a half times the regular pay rate for hours worked beyond the standard 40 in a week. This does not apply to certain exempt categories of employees, such as professional or managerial staff. Employers need to accurately track working hours to ensure proper overtime compensation and avoid legal repercussions for non-compliance with these overtime provisions.

Pay Stub Laws

North Dakota mandates that employers provide employees with a pay stub each payday. These pay stubs must include details like hours worked, wages earned, and any deductions made. This transparency ensures employees are fully aware of their compensation details and deductions. 

Workers’ Compensation Insurance

Employers in North Dakota are required to provide Workers’ Compensation Insurance. This covers medical expenses and lost wages for employees who suffer work-related injuries or illnesses. It’s a no-fault system, meaning employees are covered regardless of who caused the injury. Employers must ensure they have adequate coverage as per state guidelines, as failure to do so can result in severe penalties, including financial liabilities for uncovered claims.

Garnishments and Deductions

Employers in North Dakota may be required to withhold a portion of an employee’s wages for garnishments or other court-ordered deductions. These may include child support, alimony, or debt repayments. It’s crucial for employers to diligently comply with these orders accurately and in a timely manner. They must also be mindful of the legal limits on how much can be deducted, to ensure that employees’ wages do not fall below the legal minimum after deductions.

Final Paycheck

In North Dakota, the timing of the final paycheck depends on the circumstances of the employee’s termination. If an employee is terminated, the final paycheck is due within the next regular payday or within 15 days, whichever is earlier. If an employee resigns, the final paycheck is due on the next regular payday. Employers must ensure timely and complete payment of all owed wages, including accrued vacation pay if applicable, to comply with state laws.

Step-by-Step Guide to Payroll in North Dakota

  • Step 1: Register Your Business: Before processing payroll, register your business with the North Dakota Secretary of State. Obtain an Employer Identification Number (EIN) from the IRS, crucial for tax filings. Then, register with Job Service North Dakota for unemployment insurance. This compliance with state regulations begins with these registrations, ensuring legal operation and readiness for efficient employee onboarding and payroll management.
  • Step 2: Understand North Dakota Labor Laws: Familiarize yourself with North Dakota’s labor laws. These include minimum wage requirements, overtime rules, and break entitlements. As of my last update, North Dakota’s minimum wage aligns with the federal rate. Overtime is paid at 1.5 times the regular rate for hours exceeding 40 per week. Understanding these laws is critical for accurate payroll calculations and maintaining compliance with state regulations.
  • Step 3: Set Up Your Payroll System: Choose a payroll system that suits your business needs. Options range from manual processing to advanced software solutions or professional outsourcing. A good system should handle wage calculations, tax withholdings, and deductions efficiently. It should also generate pay stubs and manage year-end tax forms. Consider factors like cost, ease of use, user support, and scalability when selecting your payroll system.
  • Step 4: Collect Employee Tax Information: Collect necessary tax information from employees using forms like W-4 and I-9. These forms determine federal and state tax withholdings in North Dakota. On the other hand, ensure each employee completes these forms before the first payroll. This step is crucial for accurate tax withholding and compliance with tax laws. Regularly update this information to reflect any changes in employees’ tax situations.
  • Step 5: Calculate Gross Pay: Calculate each employee’s gross pay for the pay period. This includes hourly wages or salaries, along with any overtime, bonuses, or other compensations. Accurate calculation of gross pay is fundamental to the payroll process. It forms the basis for deductions and net pay, impacting both employer financials and employee satisfaction.
  • Step 6: Deduct Taxes and Withholdings: Deduct federal and state taxes, Social Security, and Medicare contributions from the gross pay of the employees. In North Dakota, you also need to consider state-specific deductions like unemployment insurance. Use the information from the W-4 forms and current tax rates for precise calculations. Timely and accurate deductions are essential to maintain compliance with tax laws and prevent discrepancies.
  • Step 7: Pay Net Pay: Disburse the net pay to employees through chosen payment method (e.g., direct deposit, check, or electronic wallets). Ensure timely payments on the scheduled payday. Delayed or inaccurate payments can lead to employee dissatisfaction and potential legal issues. Regular, reliable payroll fosters a trustworthy and efficient work environment.
  • Step 8: File Payroll Taxes: Regularly file payroll taxes with the IRS and the North Dakota State Tax Commissioner. This includes both withholdings from employees and employer contributions. Adhering to filing deadlines is crucial to avoid penalties. Proper filing ensures compliance with tax obligations and contributes to the financial health of your business.
  • Step 9: Maintain Records: Keep detailed payroll records for each employee, including wages, deductions, hours worked, and leave. North Dakota law requires maintaining these records for a minimum period. Accurate record-keeping is essential for audits, dispute resolution, and future references. It also aids in the management of year-end tax documents.
  • Step 10: Year-End Reporting: Complete year-end reporting, including W-2 forms for employees and other tax documents. Ensure accuracy and timely distribution to employees for their tax filings. Also, submit necessary reports and payments to government agencies. This step wraps up the annual payroll cycle and sets the stage for the next year’s payroll processing.

Final Thoughts

Managing payroll in North Dakota can be a particularly challenging task. Employees must ensure they diligently adhere to North Dakota’s strict payroll regulations. To simplify the often complex process of managing payroll, consider exploring our comprehensive list of the top 6 applications tailored to streamline payroll responsibilities in the United States. If you’ve already established a payroll system, we’ve provided ten tips to enhance your payroll procedure within the United States.

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.

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