Operational Gaze:
How to Run Payroll in Ohio?

April 11th 2024

Running payroll is an essential task for businesses across the United States, with each state having its unique set of regulations and requirements. Ohio, aka the Buckeye State, is no exception. When handling payroll in Ohio, employers must be well-versed in the state’s distinctive payroll and tax mandates to ensure compliance. But with a handful of requirements and rules to keep in mind, things can easily get overwhelming.

Let this guide simplify it for you.

In this in-depth guide, we’ll give you a rundown of Ohio’s distinct set of payroll and tax requirements that demand careful attention and expertise. We’ll explore everything from state income tax rates to wage and hour laws, and we’ll provide you with the knowledge and tools you need to keep your payroll operations in Ohio running without a hitch.

This Article Covers

Laws That Affect Payroll Procedures in Ohio
Worker Classifications in Ohio

Payroll Forms and Relevant Bodies in Ohio

Applicable Taxes in Ohio
Key Pay Elements That Impact Payroll in Ohio
Step-by-Step Guide to Payroll in Ohio

Laws That Affect Payroll Procedures in Ohio

In Ohio, your payroll procedures will be influenced by both state and federal laws. These regulations cover a range of factors, such as minimum wage, overtime, leaves, breaks, and more, all of which substantially impact how you handle payroll tasks. 

Ohio Laws

  • Ohio Revised Code: The Ohio Revised Code contains all current laws passed by the Ohio General Assembly that are permanent and general in nature, organized into different sections, chapters, and titles. However, it’s important to note that the official publication of the General Assembly’s enactments is the Laws of Ohio, and the Ohio Revised Code serves as a reference only.
  • Minimum Wage: Ohio’s minimum wage surpasses the federal standard. As of January 1, 2024, it stands at $10.45 per hour , marking an increase of 35 cents from the previous year’s rate of $10.10. However, this rate only applies to businesses that make over $385,000 in yearly sales. Lower-earning businesses can pay the federal minimum wage of $7.25 per hour.
  • Overtime: Ohio labor laws require employers to give employees overtime pay to qualifying employees, which amounts to 1.5 times their regular hourly rate, for any hours worked beyond 40 hours. This regulation aligns with the Fair Labor Standards Act (FLSA) rules and ensures fair compensation for extended work hours.
  • Paid Breaks or Lunch Period: Employers are not required by state law to offer their employees lunch breaks or rest periods. However, if employers provide such breaks, they must follow specific rules set by the US Department of Labor (DOL). According to the DOL, short breaks (20 minutes or less) must be paid as they boost productivity. Lunch breaks (30 minutes or more), where the employee is completely off-duty, do not need to be paid.
  • Pay periods: In Ohio, employees must be paid at least twice a month, but daily or weekly payments are allowed, too. If it’s common in the employer’s industry, longer pay intervals are acceptable. For those opting for semi-monthly wages, the law requires them to be issued on the first or fifteenth of the month for the previous month’s earnings.
  • Paid Time Off and Leaves: Ohio law does not make it mandatory for private employers to offer employees paid or unpaid vacation, bereavement, or sick leave. However, if an employer decides to offer these benefits, it’s important that they follow the rules outlined in their policy or employment contract.
  • Payroll Recordkeeping: As per section 4111.08 of the Ohio Revised Code, employers must maintain records of employee names, addresses, job roles, pay rates, pay amounts per pay period, and daily and weekly work hours. These should be kept for at least three years after they leave or the last record entry.
  • Payroll Taxes: Ohio employers are subject to various state taxes such as State Unemployment Insurance (SUI) and State Disability Insurance (SDI). The state also employs state income tax requirements with four tax brackets, ranging from 2.765 percent to 3.99 percent.
  • Retirement Benefits: The department in charge of providing retirement benefits and healthcare coverage for retired public employees in Ohio is the Ohio Public Employees’ Retirement System (OPERS). Both employees and the state of Ohio contribute to the OPERS fund during their employment. Private employers, however, are not required by state law to provide retirement benefits to their employees.
  • Final Pay: Ohio Rev. Code Section 4113.15 requires employers to provide an employee’s final paycheck on the next payday or within 15 days of termination, whichever comes first.

Federal Laws

  • Fair Labor Standards Act (FLSA): The FLSA stands as a pivotal federal statute that plays a vital role in shaping labor standards across the United States. This legislation provides a framework for employee categorization, enforces stringent child labor regulations, and mandates meticulous recordkeeping of employees’ working hours.
  • Family and Medical Leave Act (FMLA): The primary employment law governing leave of absence in Ohio is the FMLA. This federal law grants qualified employees the opportunity to take a maximum of 12 weeks of unpaid leave for circumstances such as childbirth, adoption, or tending to a family member with a severe health issue.
  • Federal Unemployment Tax Act (FUTA): The FUTA requires employers to pay unemployment taxes to support benefits for eligible employees who lose their jobs. While it’s not a direct payroll deduction for employees, employers must factor in FUTA contributions in each payroll cycle. Some industries may have exceptions, but typically, a 6% tax is applied to the first $7,000 paid to an employee each year.

HR Laws

  • Child Labor Requirements: Chapter 4109 of the Ohio Revised Code outlines a unique set of rules for minor workers. This includes the maximum number of work hours, night work restrictions, and prohibited occupations. It also requires minors to give their employer an age certificate, a school certificate, and a school-issued work permit to work. Before beginning work, both the employer and the minor must sign an agreement stating the wage rate and payment terms.
  • Posting Requirements: Ohio employers must comply with federal and state labor laws, including posting notices as required by the Ohio Department of Administrative Services (DAS), Department of Job and Family Services (DJFS), and other state agencies. Certain Ohio employers, based on size or industry, may have additional posting obligations to maintain compliance. This might include posting notices regarding equal employment opportunities and summaries and copies of the state’s minimum wage rules.
  • Ohio New Hire Reporting: Employers in Ohio are required to report all employees and independent contractors to the Ohio New Hire Reporting Center within 20 days of their hire date. State law may exempt certain employers from the obligation to report new hires, especially for specific categories of contractors, if it’s determined that exempting them would help streamline the administration of the new hire reporting requirement.

Worker Classifications in Ohio

In Ohio, workers are typically classified into two primary categories: employees and independent contractors. Each classification has distinct implications for employers in terms of payroll, taxes, and legal obligations. To determine worker classification, Ohio uses a variety of tests, including the Common Law Test and the “ABC” Test.

Employees vs Contractors

Employees and contractors represent distinct categories of workers, each characterized by unique features and employment arrangements.

Employees typically enter into formal employment agreements with their employers and are integral members of the company’s workforce. They receive regular compensation, which may come in the form of a fixed salary, hourly wages, or commissions. Employers are responsible for withholding taxes from their paychecks and providing them with IRS Form W-2, which reports their annual earnings.

On the other hand, independent contractors operate with a higher degree of autonomy. They engage in freelance or contract-based assignments and often work for multiple clients simultaneously. Independent contractors are not considered formal employees of the companies they serve, and as such, businesses do not withhold taxes from their payments. This flexibility in work arrangements allows independent contractors to choose how and when they perform their tasks, making them more akin to entrepreneurs in their approach to work.

There are also benefits that employees have that independent contractors aren’t entitled to, such as:

  • Overtime Pay
  • Minimum Wage
  • Workers’ Compensation Benefits

Common Law Test

The Common Law Test is an IRS tool to decide if a worker should be seen as an employee or an independent contractor. It focuses on “direction or control,” evaluating how much control the business has over the worker. Other factors distinguishing employees from contract workers include:

  • Independent contractors decide when, where, and how they work.
  • Employees receive training, while independent contractors are already skilled.
  • Contractors can hire their own help.
  • Contractors are usually paid per job, while employees get hourly wages.
  • Employers provide tools to employees, but independent contractors use their own.
  • Contractors run their own businesses, can earn profits or incur losses, and can work for multiple employers or the public.
  • Employees can be terminated or leave without repercussions, while contractors can only be released for contract breaches.

Not all of the 20 factors outline in the common law test may apply, depending on your business. Nevertheless, this test offers a starting point for understanding how Ohio classifies workers providing services for your business.

“ABC Test”

The ABC test is a vital assessment for employers to determine if a worker qualifies as an independent contractor, as required by many states and the U.S. Department of Labor. It consists of three key criteria that employers need to satisfy to classify a worker as an independent contractor. Simply having a written contract is not enough; employers must demonstrate the following:

  • The individual has autonomy and control over how they carry out their services, both in their contract and in practice.
  • The service provided is not directly related to the regular business operations or locations of the companies for which it is performed.
  • The service is part of a distinct and self-established trade, occupation, profession, or business similar in nature to the contracted service.

To understand the entitlements of both salaried and hourly employees, you can refer to our articles on your rights as a salaried employee in Ohio, and your rights as an hourly employee in Ohio.

Payroll Forms and Relevant Bodies in Ohio

Paperwork and filling up forms are part of the payroll process. And you want to do it right. This means understanding the various payroll forms that are required on a state and federal level. And in this section, we’re going to take a deeper look at these forms and what they’re for.

Ohio Payroll Forms

Employers in Ohio can electronically submit payroll and withholding forms using the Ohio Business Gateway (OBG). Payments can also be made electronically through their site. If you prefer to file by mail, you’ll need to request an exemption from the state.

  • Ohio State IT 4 Form: You can use this form for exemptions for tax withholding. It should be completed within ten days of hiring a new employee or if there are changes in the number of exemptions. If employees switch school districts, they will also need to fill out a new IT 4 form.
  • IT 1 Application: This form is used for registration as an Ohio Withholding Agent. This may take up to six weeks to process, so it is recommended to use the OBG for a faster application process. This is also where you can set up your account for electronic filing and payment.
  • IT 501 Employer Withholding Tax: This form is used for filing and paying quarterly taxes. Unless you are exempt, electronic filing according to the schedule is mandatory.
  • IT 941 and 942: These forms are for filing Income Withholding Tax must and they must be filed electronically through the OBG.
  • WT 8655 Withholding Tax Payroll Service Authorization: This form authorizes a payroll service company to file and pay your tax withholdings on your behalf.

Federal Payroll Forms

  • W-4 Form: Helps employers determine payroll tax withholding.
  • W-2 Form: Shows annual wages per employee.
  • W-3 Form: Summarizes wages and taxes for all employees in the company.
  • Form 940: Calculates and reports unemployment taxes to the IRS.
  • Form 941: Files quarterly income and FICA tax withholdings.
  • Form 944: Reports yearly income and FICA tax withholdings.
  • 1099 Forms: Provides IRS with payment info for contractors, aiding accurate tax collection.

Federal and Ohio Payroll/ Tax Bodies

  • Ohio Bureau of Workers’ Compensation (BWC): The BWC provides medical benefits and compensation for lost wages to employees hurt or sick due to work-related reasons.
  • Internal Revenue Service (IRS): The IRS is a U.S. government agency that operates under the Department of the Treasury. It oversees federal tax regulations throughout the country. The main responsibilities of the IRS include collecting taxes, managing tax forms, assisting taxpayers, and conducting tax audits to ensure individuals and businesses comply with all applicable taxation laws and pay their taxes.
  • Social Security Administration (SSA): The SSA safeguards the financial well-being of American citizens throughout their lives. They administer programs for retirement, disability, survivor benefits, and family support and assist people in enrolling in Medicare. The SSA also issues Social Security Numbers, which are essential for employment, financial matters, and accessing government services.
  • Wage and Hour Division (WHD): The WHD is a part of the U.S. Department of Labor. Its primary role is to ensure employers adhere to labor standards to protect workers’ rights. WHD enforces laws such as the Fair Labor Standards Act, covering minimum wage, overtime pay, record-keeping, and child labor rules. Additionally, WHD enforces other laws like the Migrant and Seasonal Agricultural Worker Protection Act and the Family and Medical Leave Act.

Applicable Taxes in Ohio

In the state of Ohio, a diverse range of taxes apply to various aspects of businesses. From income taxes to social security taxes and everything in between, we’ll break down the key state and federal tax considerations that can impact your payroll process.

State Taxes

  • Ohio State Income Tax: Ohio’s income tax rates used to vary across four brackets, ranging from 2.765 percent to 3.99 percent. But in 2023 and 2024, Ohio made changes to its personal income tax rates, simplifying it from four to three brackets and lowering the highest and lowest rates. In 2024, they’re combining the top two brackets into one with a lower rate of 3.5%. This low-income tax rate puts it in the lower third rank among all states. Residents in various Ohio cities and villages may also need to pay local income taxes in addition to state taxes.
  • Ohio State Unemployment Insurance (SUI) Tax: Ohio’s SUI tax rates vary from 0.3% to 9.8%, as per an update on November 2022 from the Ohio Job and Family Services website. New employers in construction have a slightly higher tax rate of 5.6%, up from 5.5% in 2022. Other new employers will maintain a 2.7% tax rate in 2024. For experienced employers with delinquent payments, the tax rate will go up from 12.8% in 2022 to 12.9% in 2023. Ohio’s taxable wage base remains unchanged at $9,000 for both 2023 and 2024.

Federal Taxes

  • Social Security Tax: The Social Security Tax, also known as the Old-Age, Survivors, and Disability Insurance (OASDI) tax, is a contribution made by both employees and employers, set at 6.2% of their wages. In Ohio, this tax applies up to $147,000 of the employee’s annual earnings. Employers match this contribution to the Ohio state government.
  • Medicare Tax: This tax, also known as the “hospital insurance tax,” is a federal employment tax. Both the employer and the employee contribute 1.45 percent of their wages, regardless of their income, to support the Medicare insurance program.
  • Federal Unemployment Tax: The federal unemployment tax is governed by the Federal Unemployment Tax Act (FUTA). In conjunction with state unemployment systems, it ensures payments for unemployment compensation to individuals who have lost their jobs. For 2024, the FUTA tax rate stands at 6% on the initial $7,000 of each employee’s yearly wages.

Key Pay Elements That Impact Payroll in Ohio

Minimum Wage

In Ohio, businesses with annual gross receipts below $372,000 can pay the federal minimum wage of $7.25 per hour. But if your business makes more than $372,000 a year, you must pay Ohio’s minimum wage of $10.45 per hour.

Not all employees will be entitled to the minimum wage, though. Some exemptions include:

  • Federal government employees
  • Babysitters
  • Certain agricultural workers
  • Outside salespeople
  • Family members
  • Certain employees of motor carrier companies
  • Minor league baseball players under specific conditions
  • Camp employees under certain conditions

Overtime

According to Section 4111.03 of the Ohio Revised Code, employees must receive overtime pay for hours worked over 40 in a week at a rate of at least 1.5 times their regular pay. This rule also aligns with the Federal Labor Standards Act overtime requirements.

As of July 6, 2022, a new Ohio bill was enacted by the Senate. This bill exempts certain occupations from overtime requirements, including:

  • Employees of businesses with less than $150,000 in yearly gross sales
  • Agricultural workers
  • Casual babysitters
  • Live-in caretakers
  • Recreational camp staff
  • Public employees
  • Administrative, professional, or executive employees

Learn more in detail about Ohio Overtime Laws.

Tip Credit

A tip credit is a labor practice that allows employers to offset a portion of their employees’ wages by factoring in the tips those employees receive in the course of their work. 

In Ohio, employers can use a tip credit of 50%. This means that given the minimum wage in 2024, employers can pay their employees as low as $5.25 per hour as long as the employees make enough tips to reach or exceed the state minimum wage.

Pay Stub Laws

In Ohio, there aren’t specific laws regarding pay stubs, but you’re required to maintain payroll records for five years for each employee. These records should include the employee’s:

  • Name, address, and job title
  • Pay rate
  • Total earnings for each pay period
  • Hours worked daily and weekly

Workers’ Compensation Insurance

In Ohio, if you have at least one employee, you must get workers’ compensation insurance from the Bureau of Workers’ Compensation. There are different plans for different businesses and people you’re covering, like miners or volunteer emergency workers. The cost will depend on your business and work history, with a $120 application fee. Once you pay, your employees are covered. You can also choose to self-insure.

Ohio Pay Frequency Laws

Employers in Ohio will need to pay their employees at least twice a month. You can set up pay schedules that work for your business, such as paying on the 1st and 15th of the month, every two weeks, or even weekly or daily.

For instance, if your pay period covers the 1st to the 15th of the month, you’d pay those wages on the 1st of the following month. While there might be some exceptions based on industry standards, it’s important to note that Section 4113.5 of the Ohio State Code doesn’t provide specific exemptions.

Child Labor Pay Requirements

Minors who want to work in the state must give their employer proof of their age, school attendance, and a work permit from their school. Before they can begin working, both the employer and the minor must sign a written agreement that spells out the pay rate and how they’ll be paid.

Employees under 20 years old may receive a training wage of $4.25 per hour for their first 90 days of employment. Full-time students, on the other hand, can be paid 85% of the minimum wage, which would be $8.58 for employers earning more than $372,000 a year. This can only be applicable for up to 20 hours per week and in specific situations, like work-study programs.

Garnishments and Deductions

Payroll garnishments involve the involuntary withholding of a portion of an employee’s wages to satisfy a debt or legal obligation. These can result from court orders, government agencies, or creditors seeking repayment. While some garnishments and deductions can have a legal basis, according to Ohio Revised Code Section 2716.041, the most that can be deducted from an employee’s monthly disposable earnings is 25%.

Final Paycheck

When an employee is terminated or resigns, they should receive their final paycheck on the next payday schedule or within 15 days, whichever comes first. Ohio doesn’t specify rules for compensating accrued, unused paid time off (PTO), so make sure your company policy addresses this. You cannot withhold the final paycheck for any reason.

Step-by-Step Guide to Payroll in Ohio

Running payroll in Ohio involves several steps, from setting up your business as an employer to ensuring compliance with state and federal tax regulations. Here’s a detailed breakdown of each step to guide you:

  1. Set Up Your Business as an Employer: Before running payroll in Ohio, ensure that your business is legally registered and properly structured as an employer. This involves getting an Employer Identification Number (EIN), which serves as a unique identifier for your business. Obtain it easily by applying online on the IRS website or by completing Form SS-4. You’ll also need to create an account in the Electronic Federal Tax Payment System (EFTPS).
  2. Register with the State of Ohio: You’ll also need to register with the Ohio Department of Taxation. This step ensures you comply with state tax regulations, including income and unemployment taxes. To register for Ohio payroll taxes, visit the Ohio Business Gateway online. This is where you’ll create your account for handling withholdings. While you can use a paper form, it takes longer to process. Additionally, you’ll need to register with the Ohio Department of Job and Family Services and the Employer Resource Information Center (ERIC) to handle State Unemployment Tax Act (SUTA) taxes.
  3. Set Up Your Payroll Process: Establish a clear and organized payroll process. This includes deciding on your pay frequency (e.g., weekly, bi-weekly, or monthly) and determining how you’ll handle payroll calculations and employee payments. As per Ohio pay frequency requirements, you’ll have to pay your employees at least twice a month. You can pick a schedule that suits your business, like paying on the 1st and 15th of the month, every two weeks, or even weekly if preferred.
  4. Collect Employee Information and Payroll Forms: Ensure you have all the necessary information from your employees, including their full names, Social Security numbers, and tax withholding forms (W-4 for federal and IT-4 for Ohio state taxes). It’s best to collect all this information during your onboarding process.
  5. Gather, Check, and Approve Timesheets: Accurate timesheets are necessary for accurate payroll. To streamline the process of tracking employee time, you can use time clocks, manual timesheets, or dedicated time and attendance tracking software. You also want a time tracking software that can keep track of overtime hours to ensure compliance with overtime labor standards.
  6. Calculate Payroll and Pay Employees: With accurate timesheets and employee information in hand, it’s time to crunch the numbers. Use your payroll software to calculate gross pay, deductions, and net pay for each employee. Ensure that federal and state income tax, Social Security, and Medicare deductions are accurately calculated. Once you’ve double-checked everything, pay your employees using your chosen payment method.
  7. File Federal Payroll Taxes: To pay your federal payroll taxes, you’ll need to use the EFTPS (Electronic Federal Tax Payment System). These taxes include federal income tax withheld and Social Security taxes. The timing of your payments depends on the schedule assigned to your business by the IRS, which can be either monthly or every other week.
  8. File State Payroll Taxes: Don’t forget about Ohio state payroll taxes. The Ohio Business Gateway (OBG) will be your friend here, as it helps you report and pay state withholding taxes accurately and on time. You have two options when it comes to paying your taxes: use the OBG for online payment or go for electronic funds transfer through the Ohio Treasurer of State. Remember, you only need to file for the quarters during which you withheld taxes. The frequency of your filings depends on the total income and school district taxes withheld in a 12-month period that ends on June 30.
  9. Record and Securely Store Your Payroll Records: Keep meticulous records of each pay period, including pay stubs, timesheets, and tax forms. Ohio law requires you to keep these records for at least three years, so stay organized and keep them secure.
  10. Do year-end payroll tax reports: Submit the necessary federal tax forms, including W-2 for employees and 1099 for contractors. You’ll also need to send the IT3 Transmittal of Wage and Tax Statements. Don’t forget any tax reconciliation forms, like IT 942, which can be submitted through the Ohio Business Gateway (OBG).

Final Thoughts

Running payroll in Ohio can seem like a daunting task, but with the right knowledge and resources, it can become a manageable and even easy process. Ohio’s unique tax structure and employment laws may present some challenges, but with the guidance provided in this guide, you now have a solid foundation to navigate the intricacies of payroll administration in the Buckeye State.

There are also plenty of tools that can help you streamline the payroll process further. If you want to know more about them, check out our list of the best six apps for simplifying payroll in the US. Or, if you have your own system, take a look at our ten tips to make your payroll system even better. With these practices and tools, you’ll handle payroll in Ohio like a pro!

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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