Operational Gaze:
How to Run Payroll in Washington?

December 19th 2023

In Washington, employers are required to follow strict protocols when handling payroll within the workplace. This includes calculating wages, considering deductions, and strictly adhering to the established rules regarding payroll taxes. Successfully managing payroll necessitates a deep understanding of these regulations and keeping updated with Washington’s labor laws and tax codes.

This article is specifically crafted to cater to the unique payroll demands in Washington. Its aim is to provide a structured and easy-to-follow guide for employers. By offering valuable insights and clear instructions tailored to Washington’s business environment, this guide aims to simplify the payroll process. It ensures that payroll operations seamlessly align with the legal requirements, ultimately helping businesses maintain compliance while managing their payroll effectively.

This Article Covers

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

Laws That Affect Payroll Procedures in Washington

In the space of payroll procedures, certain legal regulations govern how employees are compensated and businesses must adhere to these rules. 

Washington Laws

Washington has established a set of clear employment laws and rules that cover various aspects of the workforce, including labor standards, minimum wage, and family leave. Here’s a straightforward overview of some key regulations in Washington:

  • Washington Labor Code: The labor regulations in the Washington code covers important areas like how wages are paid, sick leave, and workers’ compensation. It’s important to note that Washington’s laws also include federal laws, such as the Federal Labor Standards Act (FLSA), for certain rules.
  • Minimum Wage: Washington is gradually increasing the minimum wage, and it currently stands at $16.28 per hour.
  • Overtime Pay: Washington follows federal standards for overtime pay. Non-exempt employees must be paid 1.5 times their regular wage for hours worked beyond 40 in a week.
  • Paid Family and Medical Leave (PFML): Washington has a program for paid family and medical leave. Eligible employees get paid leave for specific family and medical situations, and employers have to contribute to this program.
  • Equal Pay Act: Washington enforces an Equal Pay Act, which prevents wage discrimination based on gender. Employers must make sure that all employees, regardless of gender, receive fair pay for similar work.
  • Meal and Rest Breaks: In the state, employees are entitled to paid 10-minute rest breaks for every four hours of work, during which they must be relieved of all duties. Meal breaks of at least 30 minutes are provided for shifts lasting five hours or more, scheduled after the second hour of work.
  • Parental Leave: The Parental Leave Act in Washington allows eligible employees to take unpaid job-protected leave for reasons like childbirth or adoption.
  • Sick Leave: In Washington, there are laws governing sick leave, requiring employers to grant paid or unpaid sick leave to qualified employees. These laws also define the accrual and utilization of sick leave.
  • Non-Compete Agreements: Washington has specific rules about non-compete agreements, which limit employees from working for competing employers. To be legally binding, these agreements must meet certain legal criteria.
  • Wage Theft Prevention: Washington has regulations to prevent wage theft, including rules about how wages are paid, deductions, and the timing of wage payments.

Federal Laws

Three pivotal federal laws significantly impact the management of your payroll procedures, each playing a crucial role in the employment landscape:

  • The Fair Labor Standards Act (FLSA): This legislation establishes comprehensive guidelines encompassing minimum wage, overtime pay, recordkeeping, exemptions, and regulations pertaining to child labor. Applicable across diverse sectors, including private businesses and government entities at federal, state, and local levels, the FLSA forms a cornerstone in regulating labor practices.
  • The Federal Insurance Contributions Act (FICA): Under FICA, both employers and employees bear the responsibility of contributing to Social Security and Medicare. Employers are mandated to deduct 6.2% for Social Security and 1.45% for Medicare from each employee’s remuneration. Simultaneously, employers match these deductions, culminating in a collective FICA payroll tax rate of 15.3% for every employee.
  • The Federal Unemployment Tax Act (FUTA): FUTA imposes an obligation on employers to contribute to unemployment taxes, which in turn furnish benefits to eligible employees facing job loss. While not directly deducted from employee wages, FUTA contributions necessitate careful consideration in every payroll cycle. Generally, a 6% tax on the initial $7,000 disbursed annually to an employee is anticipated; however, exceptions tailored to specific industries may apply. Effectively navigating these federal laws is imperative for ensuring compliant and efficient payroll management.

HR Laws

  • Posting Requirements: Every employer in Washington must comply with specific posting requirements. It is mandatory for businesses employing workers to display labor law posters within the workplace. These posters include critical subjects, including minimum wage regulations, health and safety guidelines, and other essential labor laws. By adhering to this requirement, employers ensure that their employees are well-informed about their rights and obligations in line with Washington labor laws.
  • New Hire Reporting: Employers in Washington bear a legal responsibility to promptly notify the relevant department within 20 days of hiring, recalling, or rehiring a new employee. This notification must include relevant details about the newly hired, recalled, or rehired individual, encompassing their full name, address, social security number, and the commencement date of employment.

Worker Classifications in Washington

Employees and Independent Contractors

In Washington, it’s important to figure out if someone is an employee or an independent contractor. This depends on factors like how much control there is, the freedom the person has in their work, and the type of job. Getting this right matters a lot because wrongly classifying workers can lead to legal and financial problems. Employers in Missouri need to follow both state and federal laws, including reporting rules, to make sure they classify workers correctly and follow employment rules.

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

Worker Classification Test

In Washington, if you work in electrical or construction jobs, it’s generally seen as employment unless certain conditions are met. You need to be in charge of your work, and the job must be done either outside the usual places of work or business operations of the employer, or in a business where you take care of the costs. You should also be regularly involved in an independent trade, job, or business similar to your contract. On the day the contract starts, you have to file expense schedules with the IRS, keep active accounts with the Department of Revenue and other state agencies, have a Unified Business Identifier (UBI) number, and maintain separate books showing your income and expenses.

For all other industries in Washington, work is generally considered employment unless you’re in control of your job, and the service is done outside the usual places of work or business operations of the employer. Alternatively, in some cases, work is still seen as employment unless it’s done outside the usual places of work or business operations of the employer, or in a business where you have a main place eligible for a federal income tax business deduction. In both situations, you should be regularly involved in an independent trade, job, or business similar to your service contract. You also need to do things like filing expense schedules, keeping active accounts, having a UBI number, and maintaining separate books for income and expenses.

Payroll Forms and Relevant Bodies in Washington

Managing payroll in Washington contains the responsibility of managing state and federal regulations, often involving the completion of essential payroll documentation. In this section, we’ll explore the crucial forms and regulatory bodies in Washington that employers need to be aware of to ensure compliance and effectively handle payroll duties. It’s important to note that, in Washington, there is no individual income tax.

Washington Payroll Forms

  • Washington New Hire Reporting Requirement: Employers in the state of Washington are required to submit a report for any newly hired or returning employees. This report pertains to individuals engaged to work within the jurisdiction of Washington.

Federal Payroll Forms

  • W-3 Form: The W-3 Form serves as a comprehensive compilation, presenting an overview of the total compensation and taxes paid by all employees.
  • Form 940: This form is utilized for the purpose of reporting the unemployment taxes owed to the IRS, ensuring accurate and timely submissions.
  • Form 941: Employers employ Form 941 to provide a detailed quarterly account of earnings and deductions, encompassing income and FICA taxes withheld from employee paychecks.
  • W-4 Form: The W-4 Form is instrumental for employers in precisely determining the appropriate tax withholding for their employees, facilitating accurate payroll management.
  • W-2 Form: Specifically crafted for this purpose, the W-2 Form is designed to vividly showcase each employee’s annual earnings, enhancing transparency in financial reporting.
  • Form 944: Form 944 serves the crucial role of facilitating the annual reporting of both income and FICA taxes withheld from employee paychecks.
  • 1099 Forms: These forms play a pivotal role in providing contractors with essential information, enabling them to calculate their IRS tax obligations based on their earnings, ensuring compliance with tax regulations.

Federal and Washington Payroll/ Tax Bodies

  • Internal Revenue Service (IRS): The IRS is the main federal agency in charge of enforcing and administering internal revenue laws, including those related to payroll taxes. Employers interact with the IRS for tasks such as filing and paying federal income tax withholding, Social Security, and Medicare taxes.
  • Social Security Administration (SSA): The SSA oversees the Social Security program, which involves collecting Social Security taxes. Employers report and send Social Security taxes to the SSA, and the SSA keeps records of employees’ earnings and contributions for future benefit calculations.
  • U.S. Department of Labor (DOL): While not directly involved in payroll tax collection, the DOL establishes and enforces labor laws that can affect payroll processes, such as regulations related to minimum wage and overtime pay.
  • Washington State Department of Revenue: Managing state-level taxation, including business and occupation (B&O) taxes, the Washington State Department of Revenue handles financial obligations tied to various business activities. Employers need to navigate B&O tax responsibilities based on their specific operations.
  • Washington Employment Security Department (ESD): Overseeing unemployment insurance in the state, the ESD is the go-to for employers in Washington. Companies report and pay unemployment taxes to the ESD, and the department administers unemployment benefits to eligible individuals, ensuring a comprehensive approach to economic stability.
  • Washington State Department of Labor & Industries (L&I): Responsible for workplace safety and workers’ compensation, L&I in Washington plays a crucial role in maintaining a secure work environment. Employers have responsibilities related to workers’ compensation insurance and compliance with safety regulations, demonstrating a commitment to employee well-being and regulatory adherence.

Applicable Taxes in Washington

Employer Contributions

Federal Unemployment Tax Act (FUTA): Washington State conforms to the regulations stipulated by the Federal Unemployment Tax Act (FUTA). This act presently establishes a fixed federal rate of 6.0% applicable to the initial $7,000 of earnings for every employee.

Withheld from Employee’s Wages

  • Washington State Income Taxes: Washington does not impose income tax.
  • Workers’ Compensation in Washington: Similar to most states, Washington mandates that employers secure workers’ compensation insurance. Employers are obligated to obtain and sustain workers’ compensation insurance to cover injuries and illnesses arising from employment.
  • Social Security (FICA) Withholding: Employers must follow the Federal Insurance Contributions Act (FICA), which mandates withholding Social Security and Medicare taxes from employees’ wages. Employers are responsible for matching these withholdings by contributing an equal amount for both Social Security and Medicare. However, when it comes to additional Medicare tax, employers only withhold the employee’s portion without matching it themselves.

Additional Relevant Subtractions to Withhold on Behalf of Employees

The federal Fair Labor Standards Act (FLSA) places restrictions on employers from making deductions from employees’ wages. Certain deductions are only permitted when expressly authorized by the law or with the clear consent of the employees. Here are some instances in which deductions are legally permissible:

  • Jury and Witness Fees: Employers may deduct amounts corresponding to jury fees, witness fees, or temporary military duty pay received by employees.
  • Safety Violations: Employers possess the authority to impose penalties in good faith for serious safety rule violations, with the option to recoup these penalties from employees’ wages.
  • Disciplinary Suspensions: Permissible deductions encompass unpaid suspensions lasting one or more full days, enacted as a disciplinary measure for workplace rule violations, provided they are executed in good faith.
  • Personal Absence: Employers are authorized to make deductions for personal absence, spanning one or more full days, except in cases of illness or disability.
  • Sickness or Disability: Deductions are permissible when employees are absent due to sickness or disability for one or more full days, given the existence of a valid plan or policy compensating for the loss of pay related to illness.
  • Family and Medical Leave: Employers are well within their rights to make deductions for unpaid leave taken under the Federal Family and Medical Leave Act, which ensures job-protected leave for specific family and medical reasons.

Key Pay Elements That Impact Payroll in Washington

Minimum Wage

In Washington, As of 1 January 2024, the minimum wage stands at $16.28 per hour. This aligns with federal regulations governing exemptions from mandatory minimum wage requirements. It’s essential to note that minimum wage rates may undergo changes, underscoring the importance of staying abreast of the latest rates.

Overtime

Washington overtime laws align with the guidelines established in the federal Fair Labor Standards Act (FLSA). The fundamental principle is that employees working beyond 40 hours in a workweek are entitled to overtime pay at a rate of 1.5 times their regular hourly wage. With Washington’s minimum wage standing at $16.28 per hour from January 2024, this translates to an overtime rate of $24.42 per hour.

Workers’ Compensation Insurance

Employers operating in Washington are obligated to adhere to regulations pertaining to Workers’ Compensation Insurance. These programs act as a safety net for employees facing job-related injuries or illnesses. Furthermore, they extend disability benefits to workers incapacitated due to work-related factors, alleviating the financial impact when employees need time off from work.

Pay Stub Laws

Employees in Washington possess the right to receive compensation for all hours worked promptly. They are entitled to pay statements and access to their employer’s records detailing work hours and earnings.

Paycheck Deduction

Washington mandates that employers refrain from deducting funds from an employee’s earnings for regular operational costs like supplies, materials, or tools. If an employer requires an employee to obtain or lease a uniform, they must either absorb the uniform expense or reimburse the employee for any costs incurred. These regulations ensure that employees are not burdened with expenses related to normal business operations and are fairly compensated for any job-related expenditures.

Final Paycheck

Employees resigning from their positions in Washington must receive their full payment either on the next scheduled payday or by the first Saturday following their departure if there’s no regular payday in place. For those terminated or laid off, full payment must be made on their final working day. While employers can stipulate that wages be received through direct deposit, they cannot dictate the specific financial institution where employees will receive their earnings.

Step-by-Step Guide to Payroll in Washington

The state of Washington imposes specific obligations on employers, necessitating adherence to established procedures. In this section, we will delineate the payroll process in a systematic manner.

  • Familiarize Yourself with Payroll Regulations: Before initiating payroll procedures in Washington, it is imperative to comprehend the pertinent payroll regulations applicable to your business. These regulations may fluctuate based on factors like industry, workforce size, and the payment method—whether hourly or salaried. Familiarizing yourself with Washington state labor laws and federal payroll regulations is essential for seamless payroll operations.
  • Secure an Employer Identification Number (EIN): An Employer Identification Number (EIN), issued by the IRS, serves as a distinct identifier for tax-related purposes. Acquiring an EIN is a requisite step to fulfill employment tax obligations and other tax responsibilities in Washington. The uncomplicated application process can be accomplished online through the IRS website.
  • Enlist with the Washington State Employment Security Department: Employers in Washington must register with the Washington State Employment Security Department for unemployment insurance purposes. This registration is critical for the accurate reporting and remittance of unemployment taxes to the state. Typically, the registration process is conveniently executable through the department’s website.
  • Employee Classification: Accurate classification of your workforce in Washington as either employees or independent contractors is of paramount significance due to its substantial impact on tax and wage reporting. Incorrect classification may result in legal ramifications.
  • Collect Employee Payroll Documentation: Ensure the collection of crucial payroll documents from your employees in Washington, encompassing W-4 Forms for federal income tax withholding and I-9 Forms for employment eligibility verification.
  • Monitor Time and Attendance: Maintaining meticulous records of employee work hours, breaks, overtime, and leave is fundamental for accurate payroll management. Compliance with Washington-specific regulations on overtime pay and minimum wage rates necessitates precise record-keeping. Utilizing tools such as time and attendance software can prove beneficial.
  • Establish a Consistent Payroll Schedule: Washington mandates the establishment of a regular payroll cycle in compliance with state labor regulations. Although the frequency of payroll disbursements may vary, it should be consistent and transparently communicated to employees to keep them informed about their pay schedule.
  • Calculate Gross Earnings: Precise calculation of gross earnings is crucial in Washington, where specific wage and overtime regulations apply. These calculations should encompass various components, including commissions, bonuses, overtime pay, and expense reimbursements, in accordance with state laws.
  • Federal Payroll Tax Compliance in Washington: Adhere to IRS guidelines for depositing employment taxes according to the prescribed schedule, a practice applicable not only in Washington but also in other states.
  • Maintain Payroll Records: In Washington, it is imperative to maintain accurate employee payroll records, including work hours, pay statements, tax forms, and relevant paperwork. State and federal laws mandate the retention of these records for a minimum of three years to comply with audit regulations and address potential inquiries from tax authorities.
  • Annual Payroll Reporting: Ensure the timely completion of essential annual government reports, such as W-2 and 1099 forms, which should be provided to employees by the designated deadline.

Final Thoughts

Running payroll in Washington has its unique set of challenges. It’s crucial that individuals navigate the state’s specific minimum wage standards, tax responsibilities, and labor legislation. To simplify the process of managing payroll, you can explore our recommendations for the top 6 applications tailored to streamline payroll duties in the United States. If you’re already using a system, we’ve detailed ten tips to enhance your payroll procedures within the United States.

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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