Operational Gaze:
How to Run Payroll in Virginia?

January 19th 2024

Effectively managing payroll responsibilities in Virginia entails following a specific set of legal procedures and protocols when compensating employees. These tasks encompass activities such as adhering to payroll tax laws, calculating earnings, and complying with deduction regulations. It is crucial to have a deep understanding and to stay updated on Virginia’s unique labor laws and tax regulations to efficiently oversee payroll.

In this article, you will find a comprehensive guide tailored for Virginia’s payroll requirements, designed to assist businesses in handling each pay period accurately. The guide aims to simplify the payroll process by providing valuable insights and clear instructions for Virginia-based companies, ensuring that payroll operations run smoothly and in full compliance with the law, regardless of their level of experience.

This Article Covers

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

Laws That Affect Payroll Procedures in Virginia

There are certain legal regulations that govern how employees are compensated. Businesses in Virginia must adhere to these rules. 

Virginia Laws

  • Virginia Labor Code: The Virginia Labor and Employment Code administers labor laws in the state, covering various aspects of employment, including wage payments, leave policies, workers’ compensation, and more.
  • Overtime: In Virginia, overtime pay is determined in accordance with the Fair Labor Standards Act (FLSA). Overtime is generally calculated at a rate of one and a half times the regular hourly wage for hours worked beyond 40 in a workweek.
  • Paid Breaks and Meal Periods: Virginia break laws do not mandate employers to provide paid breaks or meal periods to their workers. Nevertheless, employers typically grant short rest breaks, usually lasting no more than 20 minutes, and these breaks are typically compensated. Additionally, Virginia law requires that minors aged 14 or 15 who work for more than five hours a day receive a 30-minute meal break.
  • Unemployment, Disability, and Workers’ Compensation: Employers in Virginia are obliged to participate in the state’s unemployment insurance program. While disability insurance is not a state requirement, some employers may voluntarily offer disability benefits. Workers’ compensation, however, is a mandated program that ensures employees are covered for job-related injuries or illnesses.
  • Minimum Wage: The minimum wage in Virginia currently stands at $12 per hour. It’s important to stay informed about any potential changes to the state’s minimum wage as they may occur over time.
  • Paid Time Off and Leaves: Generally, Virginia employment laws do not compel employers to provide paid leave, including sick leave, holiday leave, jury duty leave, voting leave, or bereavement leave. However, certain federal laws, like the Family and Medical Leave Act (FMLA), may provide eligible employees with unpaid leave for specific situations.
  • Payment Records: Employers in Virginia must furnish employees with pay stubs or wage statements that contain information on their earnings, deductions, and other pertinent details. The frequency of pay stub issuance may vary but is typically provided with each wage payment or at least twice a month.
  • Final Paycheck: When an employee’s employment is terminated in Virginia, they have the right to receive their final paycheck, encompassing any unpaid wages, within a reasonable timeframe as specified by state employment regulations. The specific timeline for providing the final paycheck may differ depending on the circumstances of the termination.

Federal Laws

  • The Fair Labor Standards Act (FLSA): FLSA establishes crucial guidelines for minimum wage, overtime pay, recordkeeping, exemption classification, and rules concerning child labor in various industries. These regulations are applicable not only to private businesses but also extend to federal, state, and local government entities.
  • The Federal Insurance Contributions Act (FICA): FICA requires both employers and employees to contribute to Social Security and Medicare. Employers must deduct 6.2% for Social Security tax and 1.45% for Medicare tax from each employee’s earnings. Employers are also obligated to match these deductions, resulting in a total FICA payroll tax rate of 15.3% for each employee.
  • The Federal Unemployment Tax Act (FUTA): FUTA mandates that employers must contribute to unemployment taxes, which are used to provide benefits to eligible employees who experience job loss. While it doesn’t directly affect employees’ paychecks since it’s an employer obligation, FUTA contributions still need to be recorded in each payroll cycle. Typically, a 6% tax on the first $7,000 paid to an employee annually is expected, with potential exceptions based on the industry.

HR Laws

  • New Hire Reporting: In Virginia, employers must follow specific rules when they hire new workers. Within 20 days of hiring, recalling, or rehiring an employee, they need to tell the Virginia New Hire Reporting Center. This report should include information like the employee’s full name, address, social security number, the employer’s name, and the Federal Tax ID number. This process helps the state keep track of employment and income details to ensure child support orders and related programs are enforced properly.
  • Posting Requirements: The Virginia Department of Labor and Industry requires all businesses with employees in the state to display certain labor law posters in the workplace. These posters give information about employees’ rights and employers’ responsibilities under various labor laws. They cover things like minimum wage, workplace safety rules, and other important laws that apply to businesses in Virginia.

Worker Classifications in Virginia

Employees and Independent Contractors

In the state of Virginia, the distinction between employees and independent contractors holds significant importance as it directly affects legal rights, duties, and tax obligations. Employees operate under the guidance of an employer, enjoy benefits, and have taxes deducted from their earnings. In contrast, independent contractors have greater independence, manage their own tax affairs, and do not receive employment-related perks.

Accurate worker classification is of utmost importance to ensure compliance with labor and tax regulations in Virginia. Incorrectly categorizing workers can result in serious legal and financial repercussions for employers. To navigate this matter effectively, it is advisable to refer to authoritative guidelines provided by relevant entities for precise classification. In complex situations, seeking professional guidance is a prudent course of action.

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

The “Right-to-Control” Test in Virginia

Virginia follows the Internal Revenue Service’s guidelines for determining worker classification. The IRS test, commonly referred to as the “right-to-control test,” assesses how work is managed. Whether a worker is considered an independent contractor or an employee hinges on their relationship with the business. This determination revolves around three key categories:

  • Behavioral Control: This aspect examines whether the company has authority or the right to dictate the worker’s tasks and how those tasks are executed.
  • Financial Control: Financial control looks into whether the business directs or manages the financial and business aspects of the worker’s job. This encompasses elements such as payment methods, expense reimbursement, provision of tools or supplies, and more.
  • Relationship of the Parties: This category delves into whether there are written contracts or benefits typically associated with employees, such as pension plans, insurance, or vacation pay. It also considers the continuity of the working relationship and whether the work performed is integral to the business’s core operations.

Payroll Forms and Relevant Bodies in Virginia

Managing payroll in Virginia requires compliance to 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 Virginia that employers should know to stay compliant and manage payroll responsibilities well.

Virginia Payroll Forms

  • VA-4P: Employers use this form to reconcile the total state income tax withheld from employees’ pay and the amount paid to the Virginia Department of Taxation. It’s typically filed annually.
  • VA-6: Employers use this form each month to report the state income tax amount withheld from employees’ pay.
  • VA-6H: This form provides an annual summary of the state income tax withheld from employee wages for the year.
  • VA-16: Employers use this form to report employee wage details and calculate their liability for Virginia’s Unemployment Insurance program.
  • VWC-1: Employers in Virginia must have workers’ compensation insurance. This form is used to apply for coverage and provide information to the Virginia Workers’ Compensation Commission.
  • VA-5: This form is not related to payroll taxes but is important for corporations registered in Virginia. It’s used to provide an annual update on the corporation’s status, financial information, and other particulars.

Federal Payroll Forms

  • W-4 Form: This form enables employers to establish the accurate tax withholding for their employees.
  • W-2 Form: Presents the complete annual income of each employee.
  • W-3 Form: Compiles the total remuneration and taxes for all employees in summary.
  • Form 940: Reports unemployment taxes owed to the IRS.
  • Form 941: This form is utilized to report earnings and FICA tax deductions from paychecks on a quarterly basis.
  • Form 944: Reports annual earnings and FICA tax withholdings from paychecks.
  • 1099 Forms: Reports annual earnings and FICA tax withholdings from paychecks.

Federal and Virginia Payroll/ Tax Bodies

  • Internal Revenue Service (IRS): The IRS is the national agency that collects and enforces federal taxes, which encompass income taxes, Social Security contributions, and Medicare contributions. Employers have the obligation to subtract federal income and payroll taxes from their employees’ paychecks and then send these taxes to the IRS.
  • Social Security Administration (SSA): The SSA manages the Social Security program, which includes providing support for retired, surviving family members, and disabled individuals. Employers and workers contribute to Social Security through payroll taxes, and these funds are used to offer benefits to qualified recipients.
  • Centers for Medicare & Medicaid Services (CMS): The CMS supervises the Medicare program, which offers health insurance coverage to eligible individuals, particularly retirees. Payroll taxes for Medicare are contributed by both employers and employees.
  • Virginia Department of Taxation: The Virginia Department of Taxation is responsible for collecting a variety of state taxes, including state income tax, sales tax, and payroll taxes. Employers in Virginia must withhold state income taxes from their employees’ earnings and remit them to the department. This agency also manages other state taxes and tax credits.
  • Virginia Employment Commission (VEC): The VEC oversees unemployment insurance in Virginia. Employers are required to pay unemployment taxes, and the VEC administers unemployment benefits for individuals who have lost their jobs.
  • Virginia Workers’ Compensation Commission: The Virginia Workers’ Compensation Commission is in charge of the workers’ compensation system in Virginia. Employers are mandated to provide workers’ compensation insurance to cover employees who are injured while on the job. The Virginia Workers’ Compensation Commission handles claims and ensures that injured workers receive appropriate benefits.

Applicable Taxes in Virginia

Employer Contributions

Unemployment Taxes in Virginia: Virginia follows the Federal Unemployment Tax Act (FUTA), which sets a fixed federal rate of 6.0% on the initial $7,000 of an employee’s earnings. In Virginia, it is the duty of employers to deduct and remit FUTA taxes to the federal government. These taxes play a crucial role in funding the unemployment benefits program.

Withheld from Employee’s Wages

  • State Income Taxes in Virginia: Virginia enforces state income taxes for both individual residents and corporate entities. The state’s income tax system follows a progressive structure, featuring various tax brackets that range from 2% to 5.75%. All income earned by individuals and corporations within Virginia is subject to the state income tax. It’s important to note that Virginia does not impose a state-level sales tax. 
  • Workers’ Compensation in Virginia: Virginia law mandates that employers must provide workers’ compensation coverage for their employees. This system ensures that workers who suffer work-related injuries or illnesses receive compensation to cover their medical expenses and disability benefits. In the unfortunate event of a work-related fatality, workers’ compensation benefits extend to the dependents of the deceased employee.
  • Social Security (FICA) Withholding in Virginia: Employers operating in Virginia are required to adhere to the Federal Insurance Contributions Act (FICA). This federal law mandates the deduction of Social Security and Medicare taxes from employees’ salaries. Employers also have the responsibility of matching these withholdings by contributing an equal amount for Social Security and Medicare. It’s important to note that, for the additional Medicare tax, employers are only responsible for withholding the employee’s portion and are not required to match it themselves.

Additional Relevant Subtractions to Withhold on Behalf of Employees

Virginia’s employment laws and regulations outline the permissible deductions that employers can make from employees’ paychecks. In accordance with Virginia labor laws, the following examples represent deductions that are legally sanctioned:

  • Personal Absence: Employers are authorized to make deductions when employees are absent for personal reasons for one or more full days, except in cases related to sickness or disability.
  • Sickness or Disability: Deductions are permissible when employees are absent due to sickness or disability for one or more full days, provided there exists a legitimate plan or policy to compensate for the loss of pay due to illness.
  • Jury and Witness Fees: Employers can make deductions to account for jury fees, witness fees, or temporary military duty pay received by employees, adhering to Virginia’s laws and regulations.
  • Safety Violations: Employers have the authority to apply penalties in good faith for significant safety rule violations, and these penalties may be deducted from employees’ pay, as per Virginia employment regulations.
  • Disciplinary Suspensions: Deductions are allowed for unpaid suspensions lasting one or more full days, serving as a disciplinary measure for workplace rule violations, provided they are imposed in good faith under Virginia law.
  • Family and Medical Leave: Employers in Virginia can deduct wages for unpaid leave taken under the Virginia Family and Medical Leave Act, which offers job-protected leave for specific family and medical reasons.

It’s essential to recognize that employment laws and tax regulations can undergo changes over time. Therefore, it is prudent for both employers and employees to remain informed about the latest legal requirements and rates by consulting the pertinent state agencies and tax authorities in Virginia.

Key Pay Elements That Impact Payroll in Virginia

Minimum Wage

Virginia’s minimum wage currently stands at $12 per hour for workers, and employers in the state are not allowed to rely on tips to meet the minimum hourly wage requirement. It’s important to note that minimum wage laws may evolve over time, so employers should stay informed about any changes to wage regulations.

Overtime

Virginia overtime laws are in line with the federal Fair Labor Standards Act (FLSA). If an employee works more than 40 hours in a workweek, they must receive compensation at a rate of 1.5 times their regular hourly wage. In Virginia, with a minimum wage of $12, this translates to an overtime rate of $18 per hour. It’s crucial for employers to be aware of these rules to ensure compliance and fair compensation for their employees.

Workers’ Compensation Insurance

In Virginia, employers are legally required to provide workers’ compensation coverage to their employees if they employ two or more workers. Some specialized workers may be exempt from this requirement. Employers can also seek approval to become self-insurers from the Virginia Workers’ Compensation Commission, allowing them to handle workers’ compensation claims directly.

Pay Stub Laws

Virginia law mandates that employers must provide employees with a detailed pay statement during each pay period. This statement should contain information about the duration of the employee’s work, their earnings, and any payments received. It should also specify regular and overtime hours worked, the hourly wage, total earnings, tax deductions, and any authorized deductions. Additionally, the pay stub should clearly indicate the start and end dates of the pay period, ensuring transparency in compensation.

Wage Garnishment

Wage garnishment laws in Virginia align with federal guidelines and offer protections for employees. It is against the law to terminate an employee solely due to wage garnishment, except in cases involving multiple garnishments. Creditors are required to provide notice to the debtor before initiating wage garnishment, and debtors have the right to dispute the debt or request a hearing. Virginia’s state laws specify the order in which different types of debts are handled and detail the process for wage garnishment, ensuring due process and fairness for all parties involved.

Final Paycheck

When an employee’s employment is terminated, they must receive full payment for the wages or salaries they have earned through their work before the termination. This payment should be made no later than the date on which they would have normally received their compensation if their employment had not been terminated.

Step-by-Step Guide to Payroll in Virginia

Effectively managing payroll in Virginia involves a series of critical steps. To initiate this process, follow this simplified breakdown:

  • Understand and Comply with Applicable Payroll Regulations: It is crucial to have a comprehensive understanding of the payroll regulations that pertain to your company in Virginia. These regulations stem from both Virginia labor laws and federal authorities and cover aspects such as minimum wage, overtime, tax withholding, and other significant factors influencing payroll.
  • Register Your Business as an Employer with the IRS: This entails obtaining your Employer Identification Number (EIN) and establishing an account within the Electronic Federal Tax Payment System (EFTPS). For new businesses, securing an EIN is a prerequisite before developing a customized payroll process flowchart. The EIN functions as a unique identifier used by the Internal Revenue Service (IRS) to oversee a company’s tax-related activities. Acquiring an EIN can be conveniently done online using Form SS-4.
  • Registering with the State of Virginia: If your business operates within Virginia, it is imperative to complete the necessary registration processes with the state. New businesses need to complete the licensing forms through the Virginia Department of Taxation. Additionally, businesses in Virginia must register with the Virginia Employment Commission for unemployment tax purposes.
  • Employee Classification: Accurately categorizing your employees is crucial to avoid legal complications. In Virginia, employee classification is assessed based on factors like the degree of control and independence, following guidelines similar to those provided by the Internal Revenue Service (IRS). Misclassifying an employee as an independent contractor can lead to legal penalties and tax liabilities.
  • Collection of Employee Payroll Forms: Newly hired employees are mandated to submit specific documentation, including payroll forms, as part of their onboarding process. All employees are required to undergo I-9 verification within the first few days of employment, and each employee should have a completed W-4 form on record.
  • Establish a Payroll Schedule: Establish the dates for employee compensation. Virginia’s payroll regulations necessitate that employees be paid at least semimonthly, with common pay periods occurring on the 1st and 15th of each month.
  • Monitor Time and Attendance: Accurate payroll management relies on a meticulous approach to tracking employee work hours, calculating overtime, documenting break times, and managing paid leave and sick leave entitlements. Time and attendance software serves as a useful tool to track hours and ease the payroll process..
  • Federal Payroll Tax Filing in Virginia: Adhere to IRS regulations when handling federal taxes, including unemployment tax. Depending on the IRS’s designation, deposit employment taxes for monthly payments by the 15th of the following month or for semiweekly payments by the following Wednesday (for Wednesday, Thursday, and Friday payments) and by the following Friday (for Saturday, Sunday, Monday, and Tuesday payments).
  • Maintain Payroll Records: Maintaining precise records of your employees’ payroll details, including work hours, pay statements, tax forms, and relevant documents, is essential in Virginia. Both federal and state laws require Virginia employers to retain these records for a specified period, typically at least three years, to ensure compliance with audit regulations and to have documentation available in case of inquiries or investigations by tax authorities.
  • File Annual Payroll Reports: Annually, you must complete government reports such as W-2 Forms and 1099 Forms. These forms should be provided to employees no later than January 31 of the following year.

Final Thoughts

It’s essential to understand and comply with the specific regulations for minimum wage, tax, and labor laws in the state to effectively manage payroll. The good news is that there are tools available to make this process easier. We have compiled a list of the top 6 apps designed to streamline your payroll operations in the US. Alternatively, if you already have a system in operation, we offer 10 tips to enhance the efficiency of your US payroll processes.

Important Cautionary Note

When making this guide, we have tried to make it accurate, but we do not give any guarantee that the information provided is correct or up-to-date. We therefore strongly advise you to seek advice from qualified professionals before acting on any information provided in this guide. We do not accept any liability for any damages or risks incurred for the use of this guide.

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