Paying Employees While Waiting for State Registrations

by Melissa Mosteller October 12th, 2022

If you recently hired an employee in a state that required a new registration, it’s not uncommon that you might need to pay them before the registration is complete. Whether from a late filing or (more likely) a delay within the state, sometimes it can take several weeks to receive account numbers to run payroll compliantly. Obviously, you want your employee to get paid during this time. We do too! Here's a way to make sure they get paid on time while keeping you compliant.

Step 1: Calculate Take Home Pay

First, you’ll need to estimate how much your employee’s take home pay will be each pay period. Because of tax requirements, we don’t recommend a simple calculation like Weekly Pay x 2 if paid biweekly. While this works, this will likely have tax implications for both you and your employee.

Instead, we recommend using a payroll calculator such as this one from Gusto (hourly version can be found here). This will allow you to accurately estimate your employee’s take home pay. In our experience, while the estimation may be a little too conservative (and withhold slightly too much), we have yet to run into a situation where the employee will owe additional taxes. Of course, your mileage may vary here.

Step 2: Pay Outside of Your Payroll System

Once you’ve found the amount per pay period, it’s time to pay your employee. Generally speaking, this is completed through a bank to bank transfer/ACH in your banking app of choice. You will need to either ask your employee for their bank account information, send them an invitation to add it themselves (such as in Brex or Mercury), or use the information provided when the employee onboarded into your payroll system. It’s important to keep in mind that this transfer can take a day or two to clear so if your regular payroll is automatically run, you’re going to make sure to send this payment one or two days before payday.

Step 3: Log the Transaction in Your Payroll System

Lastly, you’re going to need to record this payment in your payroll system. For example, in Gusto you will run a “Non-Gusto Payroll.” You will report how much you paid your employee and it is important to note that this is a net payment. The gross payment will be calculated by Gusto and you will have the option to pay the appropriate amount in taxes immediately. This will result in minimal interruptions for your employee’s pay and allow you to keep complaint in your tax payments.

- Melissa Mosteller, AbstractOps

AbstractOps automates state registrations, HR admin, and ongoing compliance so you can focus on your people.

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