Unemployment and Withholding: Not Just a Seasonal Hire Problem

For retail and hospitality businesses, the holiday season means seasonal hiring. Taking a little time to ensure your withholding and unemployment requirements are satisfied now can save a lot of time, stress, and money. Although these obligations often are not seen as major concerns, getting them wrong can be costly, but they may be avoidable. Getting withholding and unemployment requirements right has become more complicated as more HR functions are outsourced. This is because most HR and payroll services providers will not provide tax or legal advice. They will follow your instructions and they may even have a default choice you can make. Using those default rules could be a great choice for your business – or they could leave your business doing more administrative work and paying more costs than necessary. Another reason withholding and unemployment requirements are becoming more important is that businesses are expanding with employees increasingly working remotely or in multiple states.

These obligations should be taken seriously, even if you are small retail and hospitality businesses because the unemployment and withholding rules can apply to even one salesperson in another state or one administrative employee working part of the year in another state. Withholding and employment requirements should not be a reason to stop your business from operating how it sees best or expanding into new areas. These requirements should be addressed as soon as a decision to work in a new geographic area (sometimes including new metro areas in the same state). For those who are already working in multiple areas, late compliance is much better than ignoring the requirements, which can come with some surprising costs and concerns.

While each business is different and requirements vary by state, here are a few important considerations to remember:

1. Employee withholding and unemployment obligations might, but do not always, change where your business is subject to income tax.
2. With advance planning, it is sometimes possible to pay for unemployment obligations in a single state, even if you have employees in multiple states.
3. Even if you are in a state without state income tax (such as Texas, Florida, and Nevada), you still have strict unemployment obligations.
4. The thresholds for when a business needs to comply with registration and state-mandated filings are very low. In many states, you will need to comply if you have even one full-time employee.
5. Failure to comply with the withholding or unemployment requirements can quickly become problematic for businesses with bank financing or for those who are looking to be acquired.
6. Compliance and audits are on the rise, making compliance more important now than ever.

The unemployment and withholding rules are complex, but with advanced planning, compliance can be cost and time effective. Take a few minutes and learn how your business might be complying and what you can do to minimize the money and time needed to become and stay compliant. We have an experienced team ready to provide quick and effective assistance with your withholding and unemployment questions.

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The views and opinions expressed in the article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be a substitute for professional legal advice.